Sappi Limited · JSE:SAP
Sappi — Q1 FY23 Earnings Presentation
51 slides from Sappi's earnings presentation, Feb 8, 2023
Slide 1: Q1 FY23 financial results
Steve Binnie Chief Executive Officer, Sappi Limited 08 February 2023 Q1 FY23 financial results 1
Slide 2: Forward-looking statements and Regulation G disclosure
Forward-looking statements and Regulation G disclosure Forward-looking statements Certain statements in this presentation 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 i
Slide 3: Highlights Q1 FY23
Highlights Q1 FY23 Excluding special items* • EBITDA* +21% y-o-y** Best ever first quarter EBITDA* US$290m • Y-o-y** pricing gains for paper products offset cost inflation and lower sales volumes Profit for the quarter • Market demand began to soften during the quarter US$190m • Rapid downstream inv
Slide 4: EBITDA contribution split
EBITDA* contribution split 450 400 350 300 250 US$ million 200 150 100 50 - Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 -50 FY18 FY19 FY20 FY21 FY22 FY23 -100 Pulp Packaging and speciality papers Graphic papers * Refer to the supplementary information in this presentation for a re
Slide 5: EBITDA reconciliation Q1 FY22 to Q1 FY23
EBITDA* reconciliation Q1 FY22 to Q1 FY23 Pulp – US$23m Packaging and speciality papers – US$154m Energy – (US$17m) 560 Graphic papers – US$256m Chemicals – (US$41m) Purchased pulp, wood and other – (US$128m) Delivery cost – (US$28m) 480 400 US$ million 320 240 160 80 0 240 (139) 433 (214) (34) (3)
Slide 6: Cost inflation developments
Cost inflation developments Major variable input cost/ton impact on the Group since Q1 FY2020 2.5 • Energy +82% 2.0 - Largely due to the Russian-Ukrainian conflict 1.5 • Pulp +27% • Chemicals +39% 1.0 • Delivery +39% - Global logistical challenges and fuel 0.5 inflation negatively impacted delivery
Slide 7: Net debt/EBITDA development
Net debt/EBITDA* development 2,200 7.0 6.0 2,070 2,000 2,056 2,055 1,977 1,957 1,946 5.0 1,917 1,916 2.2 1,879 1,800 1,793 US$ million 4.0 0.9 1,728 1,680 1,600 1,632 1,603 3.0 1,568 1,557 1,530 1,501 1,400 2.0 1,349 1,200 1241 1.0 1,163 1,000 0.0 Q1 FY20*** Q2 FY20*** Q3 FY20*** Q4 FY20*** Q1 FY21*
Slide 8: Debt maturity profile
Debt maturity profile* Fiscal years Liquidity, US$ millions Debt Maturity , US$ millions 2028 EUR400m bond 1,400 500 453 Includes 2026 1,200 EUR240m bond 400 2032 1,000 US$221m bond 668 352 282 800 300 600 200 221 2025 ZAR1.3bn convertible bond** 400 593 88 81 100 200 25 25 69 62 20 89 0 0 Dec-22 20
Slide 9: Cash flow and Capex
Cash flow and Capex Cash Flow, US$ millions Capital Expenditure, US$ millions 600 2018 2019 2020 2021 2022 Dec-22 500 1267 1300 1100 400 900 761 709 673 700 462 472 506 300 500 416 323 294 256 300 166 93 100 1 29 23 200 -100 -300 -254 -257 100 Cash generated from operations Free cash flow** Net cash
Slide 10: Paper pulp prices
US$/ton 1,000 1,200 1,400 1,600 400 600 800 2-Jan-18 2-Mar-18 2-May-18 Source: FOEX, CCF group, RISI. 2-Jul-18 2-Sep-18 2-Nov-18 Paper pulp Prices 2-Jan-19 2-Mar-19 2-May-19 NBSK Europe (US$) NBSK Europe (EUR) 2-Jul-19 2-Sep-19 2-Nov-19 2-Jan-20 2-Mar-20 2-May-20 2-Jul-20 2-Sep-20 BHKP Europe (US$)
Slide 11: Energy price developments
Energy price developments • Milder than anticipated winter season reduced demand • Sufficient LNG supply as well as pipeline supply from Norway • Continued high storage levels across Europe • Effective gas replacement by coal, nuclear and biomass • High renewable power generation Source: Screenshot
Slide 12: Segmental overview
Segmental overview 12
Slide 13: Pulp Highlights Q1 FY23
Pulp Highlights Q1 FY23 Pulp 450 40% Sales tons -8% 400 350 35% 30% 25% Tons (‘000) 300 year-on-year** 250 200 20% 15% 10% 150 5% 100 0% Q1 19 Q2 19 Q3 19 Q4 19 Q1 20 Q2 20 Q3 20 Q4 20 Q1 21 Q2 21 Q3 21 Q4 21 Q1 22 Q2 22 Q3 22 Q4 22 Q1 23 Price per ton +9% Volume EBITDA margin year-on-year** • Net a
Slide 14: Packaging and speciality papers Highlights Q1 FY23
Packaging and speciality papers Highlights Q1 FY23 Packaging and speciality papers 450 24% Sales tons 400 350 20% 16% Tons (‘000) 300 -14% year-on-year** 250 200 12% 8% 150 4% 100 0% Q1 19 Q2 19 Q3 19 Q4 19 Q1 20 Q2 20 Q3 20 Q4 20 Q1 21 Q2 21 Q3 21 Q4 21 Q1 22 Q2 22 Q3 22 Q4 22 Q1 23 Price per ton V
Slide 15: Graphic papers Highlights Q1 FY23
Graphic papers Highlights Q1 FY23 Graphic papers 1,100 23% Sales tons -31% 1,000 900 18% 13% Tons (‘000) 800 year-on-year** 8% 700 3% 600 -2% 500 -7% 400 -12% Q1 18 Q2 18 Q3 18 Q4 18 Q1 19 Q2 19 Q3 19 Q4 19 Q1 20 Q2 20 Q3 20 Q4 20 Q1 21 Q2 21 Q3 21 Q4 21 Q1 22 Q2 22 Q3 22 Q4 22 Q1 23 Price per ton V
Slide 16: Sappi Europe Highlights Q1 FY23
Sappi Europe Highlights Q1 FY23 • Y-o-y** pricing gains offset cost inflation Sales tons -32% year-on-year** • Lower demand occurred across all product categories • Operations curtailed to match demand and manage working Price per ton (EUR) capital +56% year-on-year** • Selling prices remained stabl
Slide 17: Sappi North America Highlights Q1 FY23
Sappi North America Highlights Q1 FY23 • Another strong performance Sales tons -17% year-on-year** • Selling price gains offset cost inflation • Production was adjusted to match softening demand Price per ton (US$) towards latter part of the quarter +23% year-on-year** • Successful completion of ree
Slide 18: Sappi Southern Africa Highlights Q1 FY23
Sappi Southern Africa Highlights Q1 FY23 • Significant y-o-y** cost inflation impacted profitability Sales tons** -6% year-on-year*** • Good progress was made shipping DP from the Maputo port Price per ton (ZAR)** • Tight containerboard markets created robust demand for our packaging grades +22% yea
Slide 19: Our business strategy Thrive25
Our business strategy Thrive25 What this means Short-term objectives Drive operational excellence • Achieve zero fatalities and at least 10% reduction in LTIFR pa. • Strengthen our safety-first culture. • Maximise production outputs • Continuously improve our cost position. • Gain cost advantage thr
Slide 20: Sustainability is at the core of our business
Sustainability is at the core of our business. We understand that the long-term sustainability of our business will only be ensured by delivering sustained value for our stakeholders. 20
Slide 21: ESG - continuously rethinking what we do and how we do it
ESG - continuously rethinking what we do and how we do it Sustainability is embedded into Sappi’s business and work culture Sappi’s commitment to sustainable growth • Sappi Forests: 100% FSC certified, • Sappi Forests: 100% PEFC certified • Awarded Platinum Level in sustainability performance by ind
Slide 22: Our Science-Based Targets have been approved
Our Science-Based Targets have been approved Emission reduction targets Our commitment Approved by the SBTi as • Reduce scope 1 and scope 2 consistent with levels required to meet the goals of the Paris GHG emissions 41.5% per ton Agreement of product by 2030 from a 2019 base year*. Greenhouse gas e
Slide 23: Outlook
Outlook 23
Slide 24: Outlook
Outlook • The short term outlook is expected to be negatively impacted by the combination of the final phase of the Demand downstream inventory destocking cycle, the resulting impact on sales volumes across all market segments and the relatively high cost base – albeit this is starting to turn • Cos
Slide 25: Outlook Continued
Outlook Continued • The transaction is expected to close during the second European divestment quarter. The cash proceeds and receivables will be collected in the second and third quarter • Capital expenditure in FY2023 is estimated to be Capital expenditure US$430 million; includes US$70 million fo
Slide 26: Thank you
Thank you 26
Slide 27: Supplementary information
Supplementary information 27
Slide 28: Product contribution split Last twelve months
Product contribution split Last twelve months EBITDA* excluding special items Sales volumes** 22% 23% 51% 52% 27% 25% * Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page 22 in our Q1 FY23 financial results booklet (availa
Slide 29: EBITDA and operating profit
EBITDA and operating profit Excluding special items* 450 400 391 318 350 371 300 337 300 259 290 225 250 US$ million 240 200 224 161 211 148 142 197 128 187 185 150 177 117 172 109 105 145 155 92 139 85 131 100 118 64 112 62 52 98 48 82 31 50 16 26 0 -5 -50 -52 -100 Q1 FY18 Q2 FY18 Q3 FY18 Q4 FY18 Q
Slide 30: Packaging and speciality papers Production facilities
Packaging and speciality papers Production facilities Alfeld Mill (Germany) Lanaken Mill (Belgium) Rockwell Solutions (Scotland) Flexible packaging, label paper, Functional paper Functional papers and flexible paperboard, containerboard, silicone packaging base paper, functional paper Carmignano Mil
Slide 31: Packaging and speciality papers Product portfolio
Packaging and speciality papers Product portfolio Flexible packaging Functional papers Containerboard Paperboard Label papers Silicone base Dye sublimation Casting and papers papers papers release papers 31
Slide 32: Packaging and speciality papers Volume growth 2015 to 2023
Packaging and speciality papers Volume growth 2015 to 2023 1,800 1,664 1,600 1,600 1,464 1,400 1,209 1,200 1,129 1,009 1,000 884 887 854 800 600 400 200 - 2015 2016 2017 2018 2019 2020 2021 2022 2023F Flexpack Label Paperboard Self-adhesives Self Adhesives Digital Imaging Digital imaging Functional
Slide 33: Paperboard segments North America
Paperboard segments North America Quality Premium Premium Spectro (commercial print, (92 brightness) premium folding carton) 215,000 tons (10%) Performance (88 brightness) 2.0 million tons Performance (45%) Proto and Proto Litho Food service (folding carton and litho & cup stock lamination applicati
Slide 34: Sappi Europe
Sappi Europe Q1 FY23 Q4 FY22 Q1 FY22 Tons sold (‘000) 568 757 837 - Packaging and speciality papers 124 153 153 - Graphic papers 444 604 684 Sales (EURm) 783 982 740 Price/Ton (EUR) 1,379 1,297 884 Cost/Ton* (EUR) 1,250 1,162 871 Operating profit excluding special items** (EURm) 73 102 11 EBITDA exc
Slide 35: Coated paper Deliveries and prices Western Europe
Coated paper Deliveries and prices Western Europe* 1.7 1.6 1.5 1.4 1.3 1.2 1.1 1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 Q1 08 Q1 09 Q1 10 Q1 11 Q1 12 Q1 13 Q1 14 Q1 15 Q1 16 Q1 17 Q1 18 Q1 19 Q1 20 Q1 21 Q1 22 CWF demand MCR demand CWF 100 gsm sheets LWC 60 gsm offset reels * Western Europe shipments inclu
Slide 36: Sappi North America
Sappi North America Q1 FY23 Q4 FY22 Q1 FY22 Tons sold (‘000) 378 423 453 - Pulp 114 111 135 - Packaging and speciality papers 111 135 123 - Graphic papers 153 177 195 Sales (US$m) 526 586 512 Price/Ton (US$) 1,392 1,385 1,130 Cost/Ton* (US$) 1,151 1,099 991 Operating profit excluding special items**
Slide 37: Coated paper Deliveries and prices United States
Coated paper Deliveries and prices United States* 1.5 1.4 1.3 1.2 1.1 1.0 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 Q1 08 Q1 09 Q1 10 Q1 11 Q1 12 Q1 13 Q1 14 Q1 15 Q1 16 Q1 17 Q1 18 Q1 19 Q1 20 Q1 21 Q1 22 Domestic CWF shipments Domestic CWF purchases RISI price CFS #3 60 lb rolls * US industry purchases defi
Slide 38: Sappi South Africa
Sappi South Africa Q1 FY23 Q4 FY22 Q1 FY22 Tons sold* (‘000) 381 404 406 - Pulp 243 267 253 - Packaging and speciality papers 97 105 110 - Graphic papers 41 32 43 Sales* (ZARm) 6,250 5,924 5,472 Price/Ton* (ZAR) 16,404 14,663 13,478 Cost/Ton** (ZAR) 13,493 10,923 10,251 Operating profit excluding sp
Slide 39: Dissolving pulp prices
US$/ton 1,000 1,050 1,100 1,150 1,200 1,250 1,300 1,350 1,400 600 650 700 750 800 850 900 950 Oct 2017 Source: CCF Group. Jan 2018 Apr 2018 Jul 2018 Oct 2018 Jan 2019 Dissolving pulp Prices Apr 2019 Imp SW DP Jul 2019 Oct 2019 Jan 2020 Apr 2020 Imp HW DP Jul 2020 Oct 2020 Jan 2021 Apr 2021 Jul 2021
Slide 40: Textile fibre prices
US$\ton 1,000 1,500 2,000 2,500 3,000 3,500 4,000 0 500 Jan 2018 Source: CCF Group. Apr 2018 Jul 2018 Oct 2018 Textile fibre Prices Jan 2019 Cotton 328 Apr 2019 Jul 2019 Oct 2019 Jan 2020 Cotton "A" Index Apr 2020 Jul 2020 Oct 2020 PSF 1.4 D Jan 2021 Apr 2021 VSF 1.2 D Jul 2021 Oct 2021 Jan 2022 VSF
Slide 41: Dissolving pulp Market indicators
Dissolving pulp Market indicators Retail textile and apparel sales by region/country Dissolving pulp pricing vs Viscose staple fibre (VSF) Indexed 2017=100 Source: US Census, National Bureau of Statistics, Eurostat. Indexing by Hawkins Wright. Source: CCF Group. Estimates for the US are based on dat
Slide 42: US textile value chain inventory and sales
US textile value chain inventory and sales Significant inventory build through 2022 responding to low inventories in 2021; inventories started reducing in November 2022 120000 30000 November 2022 vs November 2021 100000 25000 • Wholesale inventory +57% • Retail inventory +21% • Total inventory + 33%
Slide 43: Cash flow
Cash flow US$m Q1 FY23 Q4 FY22 Q1 FY22 Cash generated from operations 294 352 236 Movement in working capital (174) 78 (134) Finance costs paid (39) (50) (28) Finance income received 7 5 1 Taxation (paid) refund (3) (8) (4) Cash generated from operating activities 85 377 71 Cash utilised in investin
Slide 44: EBITDA and operating profit reconciliation
EBITDA and operating profit Excluding special items* reconciliation to reported operating profit US$m Q1 FY23 Q4 FY22 Q1 FY22 EBITDA excluding special items* 290 391 240 Depreciation and amortisation (65) (73) (79) Operating profit excluding special items* 225 318 161 Special items* – gains (losses)
Slide 45: Sappi capital allocation priorities: Phase 2 Thrive25
Sappi capital allocation priorities: Phase 2 Thrive25 Strategic priority FY2023 Targets/Actions Category Regulatory External regulatory High Mandatory license to operate US$60 million for sustainability & Environmental & environmental Mandatory to meet ESG goals requirements Sustaining Maintenance C
Slide 46: Conversion and expansion of Somerset PM2
Conversion and expansion of Somerset PM2 • Conversion and expansion of Somerset PM2 from 235 000 tons per annum CWF to 470 000 tons SBS • Approved by Board on 9th November 2022 • Class 10 engineering completed • Equipment orders FQ2 2023 • Start up 2H FY2025 • Aligned with Thrive25 strategy to reduc
Slide 47: 2025 Sustainability targets: Sappi Europe
2025 Sustainability targets are aligned with United Nation´s Sustainable Development Goals (SDGs) What we need to achieve in Sappi Europe between 2021–2025*: 11%pts Increase share of renewable and clean energy 5% Improvement in specific total energy (GJ/adt) 10% year-on- Safety: achieve zero harm in
Slide 48: 2025 Sustainability targets: Sappi Southern Africa
2025 Sustainability targets are aligned with United Nation´s Sustainable Development Goals (SDGs) What we need to achieve in Sappi Southern Africa between 2021–2025*: 7%pts Increase proportion of renewable and clean energy 9% Improvement in specific total energy (GJ/adt) 10% year-on- Safety: achieve
Slide 49: 2025 Sustainability targets: Sappi North America
2025 Sustainability targets are aligned with United Nation´s Sustainable Development Goals (SDGs) What we need to achieve in Sappi North America between 2021–2025*: Within 5% of Share of renewable baseline or higher and clean energy Baseline = 79.1% 5% Improvement in specific total energy (GJ/adt) 1
Slide 50: Innovative R&D focus: unlocking the full potential of each tree
Innovative R&D focus Unlocking the full potential of each tree Graphic papers Packaging and speciality papers Commercial print and publishing Product packaging Technical papers Chemicals from lignin Binding agent Dispersion agent Pulp Emulsion stabiliser Textiles Pharmaceuticals Foodstuffs Fibre com
Slide 51: Thank you
Thank you 51