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
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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
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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EBITDA ex special items US$224m Profit for the period US$107m EPS ex-special items US$0.19
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Net sales US$5.8bn
Volumes 1,009,000t Dividend per share US$0.17/share Expansion capex US$374m Net Debt US$1,568m
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* Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page 26 in our Q4 FY18 financial results booklet (available on www.sappi.com) for a definition of special items. 209 221 224 145 152 148 50 100 150 200 250 Q4 FY16 Q4 FY17 Q4 FY18 US$ 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
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
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* EBITDA = EBITDA excluding special items
Sales revenue
US$ million
Notes:
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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* 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.
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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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Cash generated by
US$630 m
Net finance costs paid Taxation paid Maintenance Capex Expansion Capex Dividend paid Acquisition of subsidiary and other
86 217 374 407
FY16 FY17 FY18 FY19E 11 15 17
FY16 FY17 FY18
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100 200 300 400 500 600 700 2013 2014 2015 2016 2017 2018 2019E US$ million Maintenance Efficiency and expansion
Maastricht completed:
Ehingen completed:
Somerset completed:
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Ngodwana:
Saiccor:
Lanaken:
Gratkorn:
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Demand softening globally Capacity closures/conversions keep operating rates largely in balance – mostly to
Substitution and conversions benefitted coated mechanical grades
Paper prices rising, tracking pulp prices with a lag EU and NA increases announced for October – price elasticity needs to be carefully managed
Focus on costs to maintain margins Manage operating rates through conversions, market share, flexibility of machines Increase pulp integration
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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
Sales prices expected to increase upon contract renewals, may not fully recover cost inflation Softwood and hardwood fiber costs continue to rise
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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Record year for growth in VSF capacity Most DWP capacity growth coming from integrated VSF producers
DWP prices likely to be range-bound between BEK and VSF Weakening RMB places further pressure on US$ input costs of VSF producers
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
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
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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
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
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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 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$/ton - US East**
Similar performance as last year, selling prices offset input costs Unfavorable currency hedges lowered realised prices for DWP volumes DWP volumes were flat due to low inventory levels coming out of Q3 Environmental approval for the expansion of the Saiccor mill was granted
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* EBITDA and EBITDA margin shown exclude special items. Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page 26 in our Q4 FY18 financial results booklet (available on www.sappi.com) for a definition of special items. ** Source: CCF
0% 5% 10% 15% 20% 25% 30% 35% 40% 200 400 600 800 1000 1200 1400 1600 Q4 FY15 Q4 FY16 Q4 FY17 Q4 FY18 ZAR million
EBITDA* EBITDA Margin*
800 825 850 875 900 925 950 975 1000 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18
China market price – Hardwood DWP (US$/ton)**
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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 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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convenience
Demographic Change Regulations
barriers
directive Technology and Innovations
Economic Concerns
down gauging
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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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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
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
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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
Conversions and capacity closures should keep graphic grades balanced, though markets are
2019 capex expected to be approximately $590m – majority at Saiccor; Lanaken and Gratkorn Q1 will be comfortably higher than last year due to increased sales volumes of DWP and
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* Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page 26 in our Q4 FY18 financial results booklet (available on www.sappi.com) for a definition of special items.
175 195 160 209 201 208 155 221 172 211 155 224 112 133 97 145 136 145 93 152 105 142 85 148
50 100 150 200 250 US$ million
EBITDA Operating profit ex special items
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* 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**
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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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 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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* 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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* 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
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US$m Q4 FY18 Q4 FY17 FY 2018 FY 2017 Cash generated from operations 212 204 709 748
Movement in working capital 6 103 (79) (27) Net finance costs paid (24) (20) (66) (81) Taxation (paid) (23) (38) (73) (100) Dividend paid
(59)
Cash generated from operating activities 171 249 410 481 Cash utilised in investing activities (145) (208) (664) (373)
Capital expenditure (146) (197) (541) (357) Proceeds on disposal of assets
11 4 Acquisition of subsidiary
(132) (11) Other movements 1 (1) (2) (9)
Net cash generated (utilised) 26 41 (254) 108
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* Refer to page 26 in our Q4 FY18 results booklet (available on www.sappi.com) for a definition of special items.
US$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
(3) 7 27 21 Acquisition cost
(3)
(1) Profit on disposal and written off assets (4) (2) 4 (2) Asset impairment reversal
3 (6) BBBEE charge
(1) Fire, flood, storm and other events (3)
(11)
Segment operating profit 135 151 489 526
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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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* 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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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
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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: 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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