Q4 FY18 financial results delivering on strategy 15 Nov. 2018 - - PowerPoint PPT Presentation

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Q4 FY18 financial results delivering on strategy 15 Nov. 2018 - - PowerPoint PPT Presentation

Q4 FY18 financial results delivering on strategy 15 Nov. 2018 2018 Vision 2020 next phase growth intentional evolution Steve Binnie Chief Executive Officer Sappi Limited 1 Forward-looking statements and Regulation G


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SLIDE 1

15 Nov. 2018

Chief Executive Officer Steve Binnie Sappi Limited

Q4 FY18 financial results

delivering on

strategy

2018

Vision 2020

intentional

evolution

next phase

growth

1

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SLIDE 2

Forward-looking statements and Regulation G

2

 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

  • r indicate future earnings, savings, synergies, events, trends, plans or objectives. The words “believe”, “anticipate”, “expect”, “intend”, “estimate”, “plan”, “assume”, “positioned”, “will”, “may”, “should”,

“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.

 Regulation G disclosure

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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SLIDE 3

3

Summary

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SLIDE 4

Highlights – Q4 2018

4

  • Good sales quarter, impacted somewhat by low starting inventories
  • Higher paper pulp prices offset cost pressures
  • DWP prices impacted by hedging translation losses
  • European graphics paper markets weakening

Up 1% Up 5% Flat

EBITDA ex special items US$224m Profit for the period US$107m EPS ex-special items US$0.19

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SLIDE 5

Highlights – FY 2018

5

Up 10%

Net sales US$5.8bn

Up 18% Up 13% Up 72% Up 19%

  • Spec. and Pack.

Volumes 1,009,000t Dividend per share US$0.17/share Expansion capex US$374m Net Debt US$1,568m

  • 3 major projects concluded during the year – Saiccor, Ngodwana and Somerset
  • Acquisition of Cham Paper - returns ahead of expectations
  • Growing dividend in line with policy
  • Increase in net debt in line with leverage ceiling
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SLIDE 6

EBITDA and operating profit

Excluding special items*

6

* Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page 26 in our Q4 FY18 financial results booklet (available on www.sappi.com) for a definition of special items. 209 221 224 145 152 148 50 100 150 200 250 Q4 FY16 Q4 FY17 Q4 FY18 US$ million EBITDA Operating profit

Key ratios Q4 FY16 Q4 FY17 Q4 FY18 Net debt/LTM EBITDA 1.9 1.7 2.1 Interest cover 7.3 9.1 11.0 EBITDA % 15.6 15.7 14.6 ROCE % 20.9 20.2 17.0

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SLIDE 7

140 180 220 260 300 340

221 6 125 (89) (40) (4) 5 224 Q4 FY17 EBITDA Sales volume Price & mix Variable & delivery costs Fixed costs Other Exchange rate Q4 FY18 EBITDA

EBITDA* bridge

Q4 FY17 to Q4 FY18

7

* EBITDA = EBITDA excluding special items

Sales revenue

US$ million

Notes:

  • 1. All variances were calculated excluding Sappi Forestry.
  • 2. “Exchange rate” reflects translation and transactional effect on consolidation.

2018 2017 Exchange rates: Average rate for the Quarter: US$1 = ZAR 14.0615 13.1761 Average rate for the Quarter: €1 = US$ 1.1626 1.1756 Sept

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SLIDE 8

Product contribution split – LTM

8

* Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page 26 in our Q4 FY18 financial results booklet (available on www.sappi.com) for a definition of special items. Data above excludes treasury operations and insurance captive.

40% 18% 42% Specialised Cellulose Specialities & Packaging Papers Printing Papers 52% 16% 32% EBITDA excluding special items Operating profit excluding special items

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SLIDE 9

Maturity profile

Fiscal years

9

363 84 29 47 46 544 548 70 221 376 81

100 200 300 400 500 600 2019 2020 2021 2022 2023 2024 2025 2032 US$ million Cash Short-term SPH term debt Securitisation SSA EUR450m bond EUR350m bond US$221m bond

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SLIDE 10

Cash flow

10

66 73 81 167 374 123

Cash generated by

  • perating activities

US$630 m

Net finance costs paid Taxation paid Maintenance Capex Expansion Capex Dividend paid Acquisition of subsidiary and other

Cash utilised US$254 million

86 217 374 407

Expansion Capex

FY16 FY17 FY18 FY19E 11 15 17

Dividend per share

FY16 FY17 FY18

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SLIDE 11

Capex development

11

100 200 300 400 500 600 700 2013 2014 2015 2016 2017 2018 2019E US$ million Maintenance Efficiency and expansion

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SLIDE 12

Q4 FY18

 Specialities and Packaging Papers

 Maastricht completed:

New product trials are testing well, ramp-up to full volumes by 2021

 Ehingen completed:

WTL upgrade, on time, within budget

 Somerset completed:

Legacy products qualified at lower costs

Currently optimizing new products

New product trials showing excellent quality

Ramp-up delayed due to late startup

12

Update on projects

 Specialised Cellulose

 Ngodwana:

Mill now running at planned 250ktpa

 Saiccor:

production issues are behind us, now

  • perating at full capacity (780ktpa)

EIA approval given – construction started

 Graphics

 Lanaken:

PM8 project to impact Q3 2019

Allows carousel from Maastricht

 Gratkorn:

PM9 upgrade

Impact in Q1 and Q2

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SLIDE 13

13

Divisional overview

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SLIDE 14

Global P&W paper market trends

14

 Supply and demand

 Demand softening globally  Capacity closures/conversions keep operating rates largely in balance – mostly to

containerboard or testliner

 Substitution and conversions benefitted coated mechanical grades

 Selling prices and input costs

 Paper prices rising, tracking pulp prices with a lag  EU and NA increases announced for October – price elasticity needs to be carefully managed

 Strategy

 Focus on costs to maintain margins  Manage operating rates through conversions, market share, flexibility of machines  Increase pulp integration

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SLIDE 15

Global speciality & packaging paper market trends

15

 Supply and demand

 Demand for our product range continues to grow between 3% to 6%, some recent weakness  Environmental concerns spurring legislation incentivising the use of more paper-based

packaging, particularly in EU.

 Selling prices and input costs

 Sales prices expected to increase upon contract renewals, may not fully recover cost inflation  Softwood and hardwood fiber costs continue to rise

 Strategy

 More M&A in the industry  Ramp-up volumes from conversions, penetrate new markets  Maximise opportunities in paper-for-plastics shift  Commercialize new products

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SLIDE 16

Global DWP market trends

16

 Supply and demand

 Record year for growth in VSF capacity  Most DWP capacity growth coming from integrated VSF producers

 Selling prices and input costs

 DWP prices likely to be range-bound between BEK and VSF  Weakening RMB places further pressure on US$ input costs of VSF producers

 Strategy

 Grow in-step with the market (debottlenecked volumes 2018/19, future plans for Saiccor)  Evaluate external opportunities which will enable a substantial increase in volumes  Align growth with leading VSF customers – environmental and social performance key

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SLIDE 17

 Good result from higher paper selling prices, demand for coated paper was soft  Specialties and packaging volumes up 9% excluding Cham; price increases lagging cost inflation  Cham integration exceeds expectations  Variable costs up 11% year on year, pulp, latex and energy

17

Sappi Europe

0% 2% 4% 6% 8% 10% 12% 14% 20 40 60 80

Q4 FY15 Q4 FY16 Q4 FY17 Q4 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 26 in our Q4 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 Oct-18

BHKP Europe (EUR) CWF-S 100g, Germany

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SLIDE 18

 Profitability improved following PM1 conversion  Very tight market conditions, prices up 13% year on year. CWF volumes down due to conversion  DWP volumes and prices higher  Packaging business nearly doubled sales volume

18

Sappi North America

* 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 26 in our Q4 FY18 financial results booklet (available on www.sappi.com) for a definition of special items. ** Source: RISI

0% 2% 4% 6% 8% 10% 12% 14% 16% 20 40 60

Q4 FY15 Q4 FY16 Q4 FY17 Q4 FY18

US$ million

EBITDA* EBITDA Margin*

800 850 900 950 1000 1050 1100 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18

No 3 Coated freesheet - 60 lb (90g) rolls US$/ton - US East**

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SLIDE 19

 Similar performance as last year, selling prices offset input costs  Unfavorable currency hedges lowered realised prices for DWP volumes  DWP volumes were flat due to low inventory levels coming out of Q3  Environmental approval for the expansion of the Saiccor mill was granted

19

Sappi Southern Africa

* 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 26 in our Q4 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 1600 Q4 FY15 Q4 FY16 Q4 FY17 Q4 FY18 ZAR million

EBITDA* EBITDA Margin*

800 825 850 875 900 925 950 975 1000 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18

China market price – Hardwood DWP (US$/ton)**

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SLIDE 20

From paper to woodfibre

20

 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 : 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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SLIDE 21

21

Transformation – from paper to woodfibre

* EBITDA excluding special items

22 22 60 10 20 30 40 50 60 70 2010 2014 2018 US CENTS

EPS excluding special items

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2010 2014 2018

EBITDA* by Segment

Specialised cellulose Specialities and packaging papers Printing and writing papers 34 30 29 7 4 13 10 8 9 5 10 15 20 25 30 35 40 2010 2014 2018 %

Segment analysis: EBITDA* margin

Specialised cellulose Specialities and packaging papers Printing and writing papers

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SLIDE 22

Specialities and Packaging Papers

22

Trends in our market

  • Easy opening
  • More functionality and

convenience

  • Smaller pack sizes

Demographic Change Regulations

  • Food safety – Mineral oil

barriers

  • Plastic bans and waste

directive Technology and Innovations

  • Traceable packaging
  • Customized packaging
  • Smart/active packaging

Economic Concerns

  • Cost reduction (TCO)
  • Light weighting and

down gauging

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SLIDE 23

Sappi specialities and packaging papers

23

Global production sites with the ability to switch between graphics and packaging at various sites*

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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SLIDE 24

24

Umbrella brand for Sappi’s dissolving wood pulp products

Emphasising Sappi’s commitment to producing a natural fibre sourced from sustainably managed forests

Verve - fibre for a thriving world

Supports our long-standing reputation for:

  • Quality
  • Consistency
  • Reliability
  • Sustainability (people, planet, prosperity)
  • Collaboration with customers
  • Innovation
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SLIDE 25

Maintain a healthy balance sheet Rationalise declining businesses Accelerate growth in higher margin growth segments Achieve cost advantages

Improve

  • perational

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

Our group strategy

25

At Sappi we do business with integrity and courage; making smart decisions which we execute with speed. Our values are underpinned by an unrelenting focus on and commitment to safety.

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SLIDE 26

Achieve cost advantages

Improve

  • perational

and machine efficiencies Maximise procurement benefits Optimise business processes

Our group strategy

26

 We work to lower fixed and variable costs,

increase cost efficiencies and invest for cost advantages.

 Group efficiency and procurement initiatives

US$60m target for 2019.

 Ongoing continuous improvement across all mills.  Debottleneck pulp capacity in Europe  Saiccor expansion will lead to lower variable costs  €30m upgrade to Gratkorn PM9

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SLIDE 27

Rationalise declining businesses

Continuously balance paper supply and demand in all regions Where possible convert paper machines to higher margin businesses

Our group strategy

27

 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.

 Progressive transition of Lanaken Mill out of LWC.  Reduced CWF exposure at Maastricht Mill, Ehingen

Mill and Somerset Mill PM1.

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SLIDE 28

Maintain a healthy balance sheet

Optimise working capital Strong cash generation Smart financing

Our group strategy

28

 Maintain leverage below 2x Net debt:EBITDA  Finance costs US$60-70m/annum going

forward.

 Renewal of RCF

 Lower spread (165bp), cost and commitment fee  Additional flexibility for acquisitions and disposals

 Will monitor bond markets for opportunities to

refinance at lower cost

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SLIDE 29

Accelerate growth in higher margin growth segments

Extract value from our biorefinery stream Enhance specialised cellulose portfolio Expand paper packaging grades

Our group strategy

29

 We will make investments in existing and

adjacent areas with strong potential growth.

 Debottlenecking of Saiccor, Cloquet and Ngodwana

DWP.

 Investments in Speciality packaging incl. Rockwell and

Cham Paper

 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

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SLIDE 30

30

Outlook

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SLIDE 31

 DWP sales volumes to improve post debottlenecking – prices likely to be rangebound  Demand growth for specialities and packaging papers and increased sales volumes as our

conversion projects ramp-up production

 Conversions and capacity closures should keep graphic grades balanced, though markets are

slowing - margin maintenance through cost management

 2019 capex expected to be approximately $590m – majority at Saiccor; Lanaken and Gratkorn  Q1 will be comfortably higher than last year due to increased sales volumes of DWP and

packaging grades.

31

Outlook

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SLIDE 32

Thank you

32

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SLIDE 33

33

Supplementary information

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SLIDE 34

Excluding special items*

34

EBITDA and operating profit

* Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page 26 in our Q4 FY18 financial results booklet (available on www.sappi.com) for a definition of special items.

175 195 160 209 201 208 155 221 172 211 155 224 112 133 97 145 136 145 93 152 105 142 85 148

50 100 150 200 250 US$ million

EBITDA Operating profit ex special items

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SLIDE 35

35

Net debt/EBITDA development

* 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 1568 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 Q4 18 US$ million Net debt Net debt/LTM EBITDA**

2.1 4.6

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SLIDE 36

Accelerate growth in higher margin growth segments

Extract value from our biorefinery stream Enhance specialised cellulose portfolio Expand paper packaging grades

Speciality and packaging papers expansion plans

36

 Europe

Maastricht: construction done, ramp-up by 2021

  • 160k CWF, +150k specialities (FBB)

Ehingen: completed Q3 FY18, 1.5 year ramp-up

  • 75k CWF, +60k specialities (WTL)

Alfeld: construction to start FY19, done Q4 FY20

+10k specialities (Various)

Lanaken: enable CWF on PM8, as market develops

 North America

Somerset: construction done, 3 year ramp up

  • 150k CWF, +350k specialities (SBS)
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SLIDE 37

Accelerate growth in higher margin growth segments

Extract value from our biorefinery stream Enhance specialised cellulose portfolio Expand paper packaging grades

DWP expansion plans

37

 Debottlenecking

Saiccor – 10kt complete April 2018

Ngodwana – 50kt complete September 2018

Cloquet – 30kt complete Q3 2019

additional 70kt swing capacity available  Expansion

Saiccor – 110kt ≈Q3 2020 subject to positive EIA

 External

Paper pulp prices impacting valuations and returns

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SLIDE 38

Western Europe

38

Coated paper deliveries and prices

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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SLIDE 39

39

Sappi Europe

* 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 26 in our Q4 FY18 financial results booklet (available on www.sappi.com) for a definition of special items.

Q4 FY18 Q4 FY17 FY 2018 FY 2017 Tons sold (‘000) 864 842 3,366 3,343 Sales (EURm) 671 583 2,495 2,319 Price/Ton (EUR) 777 692 741 694 Cost/Ton* (EUR) 733 651 701 656 Operating profit excluding special items** (EURm) 38 35 137 127

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SLIDE 40

40

Sappi North America

* 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 26 in our Q4 FY18 financial results booklet (available on www.sappi.com) for a definition of special items.

Q4 FY18 Q4 FY17 FY 2018 FY 2017 Tons sold (‘000) 363 361 1,371 1,359 Sales (USDm) 388 357 1,432 1,360 Price/Ton (USD) 1,069 989 1,044 1,001 Cost/Ton* (USD) 983 914 1,009 966 Operating profit excluding special items** (USDm) 31 27 49 47

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SLIDE 41

41

Sappi Southern Africa

* 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 26 in our Q4 FY18 financial results booklet (available on www.sappi.com) for a definition of special items.

Q4 FY18 Q4 FY17 FY 2018 FY 2017 Tons sold (‘000) 441 447 1,620 1,606 Sales (ZARm) 4,824 4,641 17,333 17,489 Price/Ton (ZAR) 10,939 10,383 10,699 10,890 Cost/Ton* (ZAR) 8,488 7,908 8,524 8,082 Operating profit excluding special items** (ZARm) 1,081 1,106 3,524 4,510

Excluding Sappi Forests

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SLIDE 42

Cash flow

42

US$m Q4 FY18 Q4 FY17 FY 2018 FY 2017 Cash generated from operations 212 204 709 748

Movement in working capital 6 103 (79) (27) Net finance costs paid (24) (20) (66) (81) Taxation (paid) (23) (38) (73) (100) Dividend paid

  • (81)

(59)

Cash generated from operating activities 171 249 410 481 Cash utilised in investing activities (145) (208) (664) (373)

Capital expenditure (146) (197) (541) (357) Proceeds on disposal of assets

  • 1

11 4 Acquisition of subsidiary

  • (11)

(132) (11) Other movements 1 (1) (2) (9)

Net cash generated (utilised) 26 41 (254) 108

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SLIDE 43

Excluding special items reconciliation to reported operating profit

43

EBITDA and operating profit

* Refer to page 26 in our Q4 FY18 results booklet (available on www.sappi.com) for a definition of special items.

US$m Q4 FY18 Q4 FY17 FY 2018 FY 2017

EBITDA excluding special items* 224 221 762 785

Depreciation and amortisation (76) (69) (282) (259)

Operating profit excluding special items* 148 152 480 526 Special items* - gains (losses)

(13) (1) 9

  • Plantation price fair value adjustment

(3) 7 27 21 Acquisition cost

  • (2)
  • Net restructuring provisions

(3)

  • (1)

(1) Profit on disposal and written off assets (4) (2) 4 (2) Asset impairment reversal

  • (6)

3 (6) BBBEE charge

  • (1)

(1) Fire, flood, storm and other events (3)

  • (21)

(11)

Segment operating profit 135 151 489 526

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SLIDE 44

United States of America

44

Coated paper prices and shipments

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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SLIDE 45

45

Pulp prices*

* 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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SLIDE 46

46

Textile fibre prices*

* 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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SLIDE 47

Fibre properties and applications

47

Cellulosic fibre properties helping drive that growth

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

  • On a pure

property basis, cellulosic fibres are superior to cotton and differentiated

  • n

sustainability.

  • Polyester is

differentiated

  • n strength/

durability versus cotton and cellulosic fibres.

  • Natural and attractive,

‘greener’ alternative to cotton

  • Natural, functional and

well established

  • Cheap, durable and

versatile Durability

 

Absorbency

 

Breathability

 

Softness

  

Drape

 

Dyeability

  

Brightness/Lustre

  

Renewable and biodegradeable

 

Resource efficiency



 

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SLIDE 48

Dissolving wood pulp market

48

Viscose-grade DWP demand growth

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)

  • Textiles (viscose)
  • Non-wovens
  • Cellophane
  • Sausage skins
  • Construction
  • Food additives
  • Medicine fillers
  • Cosmetics
  • Cigarette filters
  • Paints and coatings
  • Films
  • Plastics
  • Explosives
  • Inks
  • Lacquers
  • Nail polish
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SLIDE 49

49

There is still significant headroom to increase the level of cellulosic fibre blending in most sub-categories

Source: Expert interviews.

POLYESTER

Future Today Gap Today Future Gap Today Future Gap

COTTON CELLULOSIC

Apparel Home textile Towels 5% 5% 0% 80% 75%

  • 6%

15% 20% +33% Bedding 45% 55% +22% 45% 40%

  • 11%

1% 2% +100% Denim 5% 5% 95% 95% 0% 0% 0% 0% Shirts 35% 40% +14% 50% 40%

  • 20%

15% 20% +33% T-shirts 30% 50% +67% 70% 50%

  • 29%

3% 5% 0% Dresses 10% 10% 0% 35% 25%

  • 29%

55% 65% +18% Suits 35% 40% +14% 25% 20%

  • 20%

~1% ~2% +100% Sportswear 85% 85% 0% 0% 0% 0% 15% 15% 0% Casual wear 45% 50% +11% 45% 35%

  • 22%

10% 15% +50%

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SLIDE 50

Thank you

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