13 August 2018
Chief Executive Officer Steve Binnie Sappi Limited
Q3 FY18 financial results
delivering on
strategy
2018
Vision 2020
intentional
evolution
next phase
growth
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Q3 FY18 financial results delivering on strategy 13 August 2018 - - PowerPoint PPT Presentation
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 Forward-looking statements and Regulation G
Chief Executive Officer Steve Binnie Sappi Limited
delivering on
intentional
evolution
next phase
1
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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
“risk” and other similar expressions, which are predictions of or indicate future events and future trends and which do not relate to historical matters, identify forward-looking statements. In addition, this document includes forward-looking statements relating to our potential exposure to various types of market risks, such as interest rate risk, foreign exchange rate risk and commodity price risk. You should not rely on forward-looking statements because they involve known and unknown risks, uncertainties and other factors which are in some cases beyond our control and may cause our actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements (and from past results, performance or achievements). Certain factors that may cause such differences include but are not limited to:
The highly cyclical nature of the pulp and paper industry (and the factors that contribute to such cyclicality, such as levels of demand, production capacity, production, input costs including raw
material, energy and employee costs, and pricing)
The impact on our business of adverse changes in global economic conditions Unanticipated production disruptions (including as a result of planned or unexpected power outages) Changes in environmental, tax and other laws and regulations Adverse changes in the markets for our products The emergence of new technologies and changes in consumer trends including increased preferences for digital media Consequences of our leverage, including as a result of adverse changes in credit markets that affect our ability to raise capital when needed Adverse changes in the political situation and economy in the countries in which we operate or the effect of governmental efforts to address present or future economic or social problems The impact of restructurings, investments, acquisitions, dispositions and other strategic initiatives (including related financing), any delays, unexpected costs or other problems experienced in
connection with dispositions or with integrating acquisitions or implementing restructurings or other strategic initiatives, and achieving expected savings and synergies, and
Currency fluctuations.
We undertake no obligation to publicly update or revise any of these forward-looking statements, whether to reflect new information or future events or circumstances or otherwise.
Certain non-GAAP financial information is contained in this presentation that management believe may be useful in comparing the company’s operating results from period to period. Reconciliation's of certain of the non-GAAP measures to the corresponding GAAP measures can be found in the quarterly results booklet for the relevant period. These booklets are available on our website: https://www.sappi.com/quarterly-reports.
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Transition from global paper company to global woodfibre business
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 : 2017-2020: Strong positions in DWP and packaging give rise to growth opportunities Global trends shifting in Sappi’s favour
Sustainability driving textile and packaging industries
Growth in paper based packaging, rising pulp costs and recycled paper trade flows encourage graphic paper conversions and closures
Bio-chemicals and biomaterials offer interesting new growth opportunities while supporting existing businesses
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* EBITDA excluding special items
22 22 60 10 20 30 40 50 60 70 2010 2014 Q3 2018 LTM US CENTS
EPS excluding special items
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2010 2014 Q3 2018 LTM
EBITDA* by Segment
Specialised cellulose Specialities and packaging papers Printing and writing papers 34 30 30 7 4 13 10 8 9 5 10 15 20 25 30 35 40 2010 2014 Q3 2018 LTM %
Segment analysis: EBITDA* margin
Specialised cellulose Specialities and packaging papers Printing and writing papers
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Alfeld Mill (Germany) Containerboard, flex-pack, label, paperboard, silicone base papers Carmignano Mill (Italy) Flexible packaging and functional papers Condino Mill (Italy) Flexible packaging and functional packaging Cloquet Mill* (USA) Label papers Ehingen Mill* (Germany) Containerboard Maastricht Mill* (The Netherlands) Paperboard Ngodwana Mill (South Africa) Containerboard Somerset Mill* (USA) Label paper and flexible packaging paper Tugela Mill (South Africa) Containerboard Westbrook Mill (USA) Silicone base papers Stockstadt Mill* (Germany) Flexible packaging and functional papers
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convenience
Demographic Change Regulations
barriers
directive Technology and Innovations
Economic Concerns
down gauging
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Regulations
barriers
directive
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Source: Sappi; Hawkins Wright; RISI. Other Europe Americas China
0.2 6.1 0.6 0.6 1.7 3.7 1.9 7.5 Market size 2017 Mtpa CAGR 2010-17% Viscose Cellulose ethers and MCC Cellulose acetate tow Nitro- cellulose and other Products (examples) 7.5 ~6-7 Total Rayon Grade High- alpha/ Speciality DWP grade Demand geography Applications (examples)
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Source: IHS Global, RISI, Hawkins Wright.
Key strength Qualifies Issue Apparel Home textiles Nonwovens/Technical textiles
Overall value proposition Applications Function and feel Appearance Sustainability 17 62 21 66 27 7 52 20 28 Cellulosic fibres Cotton Polyester
property basis, cellulosic fibres are superior to cotton and differentiated
sustainability.
differentiated
durability versus cotton and cellulosic fibres.
‘greener’ alternative to cotton
well established
versatile Durability
Absorbency
Breathability
Softness
Drape
Dyeability
Brightness/Lustre
Renewable and biodegradeable
Resource efficiency
Maastricht:
Ehingen:
Somerset:
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Ngodwana:
Saiccor:
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* Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page 22 in our Q3 FY18 financial results booklet (available on www.sappi.com) for a definition of special items. 160 155 155 97 93 85 20 40 60 80 100 120 140 160 180 Q3 FY16 Q3 FY17 Q3 FY18 US$ million EBITDA Operating profit
Key ratios Q3 FY16 Q3 FY17 Q3 FY18 Net debt/LTM EBITDA 2.2 1.7 2.1 Interest cover 7.0 8.4 11.0 EBITDA % 13.1 12.3 10.7 ROCE % 14.0 12.8 9.7
50 100 150 200 250 300
EBITDA Q3 FY17 Sales Volume Price & Mix Variable & Delivery Costs Fixed Costs Other Exchange Rate EBITDA Q3 FY18
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* EBITDA = EBITDA excluding special items
Sales revenue
US$ million
Notes:
Jun Exchange rates: 2018 2017 Average rate for the quarter: US$1 = ZAR 12.6312 13.1875 Average rate for the quarter: €1 = US$ 1.1920 1.1011
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* Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page 22 in our Q3 FY18 financial results booklet (available on www.sappi.com) for a definition of special items. Data above excludes treasury operations and insurance captive.
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100 200 300 400 500 600 2018 2019 2020 2021 2022 2023 2024 2032 US$ million Cash Short-term SPH term debt Securitisation SSA EUR450m bond EUR350m bond US$221m bond
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100 200 300 400 500 600 700 2013 2014 2015 2016 2017 2018F 2019E US$ million Maintenance Efficiency and expansion
Saiccor expansion capex subject to EIA approval
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Operating rates remain healthy – CM partially at expense of CWF in EU. Capacity closures and conversions (many to recycled containerboard) in North America and
Paper prices rising globally, tracking pulp price increases Lag effect between pulp and paper prices
Capacity conversions into other markets (Somerset/Maastricht/Lanaken/Ehingen) Flexibility post conversion at Somerset and Maastricht to take advantage of market dynamics Investments at key mills/machines to lower costs Procurement and efficiency programs to further reduce costs.
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Environmental concerns spurring legislation incentivising the use of more paper-based
Negative public perception weighs on plastic packaging Conversions into recycled grades driven by China ban on RCP
Price increases announced in April – lag due to contract term Softwood and hardwood fiber costs continue to rise
Acquisition of Cham speciality paper business Increase capacity and product offering to a growing customer base Procurement and efficiency programs to further reduce costs Transfer of Rockwell technology to paper based products
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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
DWP market prices steady – range-bound between BEK and VSF Weakening RMB places further pressure on US$ input costs of VSF producers
Long-term global growth opportunities Align growth with leading VSF customers – environmental and social performance key Do not overpay for assets in heated paper pulp market
Strong performance despite cost pressures CM demand good, aided by market dynamics in adjacent grades Cham Paper exceeded expectations Fixed costs higher due to maintenance/headcount increase Lower latex and energy costs partially mitigated the impact of higher pulp prices
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0% 2% 4% 6% 8% 10% 12% 20 40 60 80
Q3 FY15 Q3 FY16 Q3 FY17 Q3 FY18
Eur million
EBITDA* EBITDA Margin* * EBITDA and EBITDA margin shown exclude special items. Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page 22 in our Q3 FY18 financial results booklet (available on www.sappi.com) for a definition of special items.
600 650 700 750 800 850 900 950 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18
BHKP Europe (EUR) CWF-S 100g, Germany
Profitability improved marginally versus last year – US$8m impact from PM1 overrun Average realised coated paper prices were up 12% y-o-y 12% increase in DWP volumes from Cloquet partially offset the rise in paper pulp prices PM1 conversion completed, although was behind schedule and approximately US$35-50m over
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* EBITDA and EBITDA margin shown exclude special items. Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page 22 in our Q3 FY18 financial results booklet (available on www.sappi.com) for a definition of special items. ** Source: RISI
0% 1% 2% 3% 4% 5% 6% 7% 5 10 15 20 25
Q3 FY15 Q3 FY16 Q3 FY17 Q3 FY18
US$ million
EBITDA* EBITDA Margin*
800 820 840 860 880 900 920 940 960 980
No 3 Coated freesheet - 60 lb (90g) rolls US$/ton - US East**
Weaker result due to currency and poor re-starts from scheduled shuts/upgrades DWP sales volumes affected and inventories are low – prices stable Results from paper business were strong due to higher volumes and prices Increased variable and fixed costs, exacerbated by the extended downtime
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* EBITDA and EBITDA margin shown exclude special items. Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page 22 in our Q3 FY18 financial results booklet (available on www.sappi.com) for a definition of special items. ** Source: CCF
0% 5% 10% 15% 20% 25% 30% 35% 40% 200 400 600 800 1000 1200 1400 Q3 FY15 Q3 FY16 Q3 FY17 Q3 FY18 ZAR million
EBITDA* EBITDA Margin*
800 825 850 875 900 925 950 975 1000
China market price – Hardwood DWP (US$/ton)**
Maintain a healthy balance sheet Rationalise declining businesses Accelerate growth in higher margin growth segments Achieve cost advantages
Improve
and machine efficiencies Maximise procurement benefits Optimise business processes
Continuously balance paper supply and demand in all regions Where possible convert paper machines to higher margin businesses
Optimise working capital Strong cash generation Smart financing Expand paper packaging grades Enhance specialised cellulose portfolio Extract value from our biorefinery stream
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Improve
and machine efficiencies Maximise procurement benefits Optimise business processes
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Group efficiency and procurement initiatives
Ongoing continuous improvement across all mills. Debottleneck pulp capacity in Europe Saiccor expansion will lead to lower variable costs €30m upgrade to Gratkorn PM9
Continuously balance paper supply and demand in all regions Where possible convert paper machines to higher margin businesses
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Progressive transition of Lanaken Mill out of LWC. Reduced CWF exposure at Maastricht Mill, Ehingen
Conversion of Somerset PM1 and Maastricht Mill
Optimise working capital Strong cash generation Smart financing
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Lower spread (165bp), cost and commitment fee Additional flexibility for acquisitions and disposals
Extract value from our biorefinery stream Enhance specialised cellulose portfolio Expand paper packaging grades
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Debottlenecking of Saiccor, Cloquet and Ngodwana
Investments in Speciality packaging incl. Rockwell and
Additional packaging at Ngodwana and Tugela Mills. Securing additional HW timber supply. Biomaterials, bio-chemicals – lignins, sugars. Xylitol and Furfural demo plant to be built at Ngodwana Expansion of Saiccor by 110kt/annum
Extract value from our biorefinery stream Enhance specialised cellulose portfolio Expand paper packaging grades
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ZAR1.8bn 25MW boiler approved by DoE Construction begins Q3 FY18, expected completion
Sappi share ZAR139m = 30% equity stake ROI~19% Significant BBBEE benefits
Extract value from our biorefinery stream Enhance specialised cellulose portfolio Expand paper packaging grades
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Europe
+10k specialities (Various)
North America
Extract value from our biorefinery stream Enhance specialised cellulose portfolio Expand paper packaging grades
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Debottlenecking
additional 70kt swing capacity available Expansion
External
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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
Q4 capex expected to be approximately $180m – majority at Saiccor, Ngodwana and Somerset We expect to reduce net debt further with positive cash generation during the quarter Given current market conditions and exchange rates, we expect our Q4 operating performance
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* Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page 22 in our Q3 FY18 financial results booklet (available on www.sappi.com) for a definition of special items.
175 195 160 209 201 208 155 221 172 211 155 112 133 97 145 136 145 93 152 105 142 85
50 100 150 200 250 US$ million
EBITDA Operating profit ex special items
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* EBITDA is excluding special items. ** The covenant Net debt/LTM EBITDA calculation has adjustments and therefore differs from that shown above. 2,380 2,248 2,286 1,946 2,040 1,916 1,917 1,771 1,734 1,652 1583 1408 1338 1329 1318 1322 1349 1632 1603 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 1,000 1,200 1,400 1,600 1,800 2,000 2,200 2,400 2,600 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 Q4 17 Q1 18 Q2 18 Q3 18 US$ million Net debt Net debt/LTM EBITDA**
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0.5 0.6 0.7 0.8 0.9 1 1.1 1.2
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 calendar 1Q 2008.
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* Sales less operating profit excluding special items divided by tons sold. ** Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page 22 in our Q3 FY18 financial results booklet (available on www.sappi.com) for a definition of special items.
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 special items** (EURm) 31 23 99 91
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0.5 0.6 0.7 0.8 0.9 1 1.1 1.2 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, less exports. Source: AF&PA and RISI indexed to calendar Q1 FY08.
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* Sales less operating profit excluding special items divided by tons sold. ** Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page 22 in our Q3 FY18 financial results booklet (available on www.sappi.com) for a definition of special items.
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 special items** (USDm) 1 (2) 18 20
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Source: Expert interviews.
POLYESTER
Future Today Gap Today Future Gap Today Future Gap
COTTON CELLULOSIC
Apparel Home textile Towels 5% 5% 0% 80% 75%
15% 20% +33% Bedding 45% 55% +22% 45% 40%
1% 2% +100% Denim 5% 5% 95% 95% 0% 0% 0% 0% Shirts 35% 40% +14% 50% 40%
15% 20% +33% T-shirts 30% 50% +67% 70% 50%
3% 5% 0% Dresses 10% 10% 0% 35% 25%
55% 65% +18% Suits 35% 40% +14% 25% 20%
~1% ~2% +100% Sportswear 85% 85% 0% 0% 0% 0% 15% 15% 0% Casual wear 45% 50% +11% 45% 35%
10% 15% +50%
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* Source: FOEX, CCF group. 600 700 800 900 1,000 1,100 1,200 1,300 US$/ton NBSK Europe BHKP Europe Commodity DWP Cotton linter pulp
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* Source: CCF group. 800 1,200 1,600 2,000 2,400 2,800 Cotton 328 Cotton "A" Index PSF 1.4 D VSF 1.2 D VSF 1.5 D
US$/ton
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* Sales less operating profit excluding special items divided by tons sold. ** Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page 22 in our Q3 FY18 financial results booklet (available on www.sappi.com) for a definition of special items.
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 special items** (ZARm) 553 918 2,443 3,404
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US$m Q3 FY18 Q3 FY17 YTD 18 YTD 17 Cash generated from operations 141 139 497 544
Movement in working capital 33 (7) (85) (130) Net finance costs paid (21) (20) (42) (61) Taxation refund (paid) (6) 4 (50) (62) Dividend paid
(59)
Cash generated from operating activities 147 116 239 232 Cash utilised in investing activities (188) (86) (519) (165)
Capital expenditure (188) (78) (395) (160) Proceeds on disposal of assets 1
3 Acquisition of subsidiary
(1) (8) (3) (8)
Net cash generated (utilised) (41) 30 (280) 67
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* Refer to page 22 in our Q3 FY18 results booklet (available on www.sappi.com) for a definition of special items.
US$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* - gains (losses)
(1) (3) 22 1 Plantation price fair value adjustment 8 2 30 14 Acquisition cost
2 (1) Profit on disposal and written off assets (1)
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(1) Fire, flood, storm and other events (11) (4) (18) (11)
Segment operating profit 84 90 354 375
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