Sappi Limited · JSE:SAP
Sappi — Q4 FY2022 Earnings Presentation
60 slides from Sappi's earnings presentation, Nov 10, 2022
Slide 1: Q4 FY22 financial results
Steve Binnie Chief Executive Officer, Sappi Limited 10 November 2022 Q4 FY22 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 FY2022
Highlights FY2022 Excluding special items* • Strong global paper markets Record annual EBITDA* US$1,339m • Pricing momentum offset sharply rising costs • Graphic papers generated record EBITDA* US$650 million Profit for the year US$536m • Packaging and speciality papers EBITDA* growth y-o-y** 68% EP
Slide 4: Highlights Q4 FY22
Highlights Q4 FY22 Excluding special items* • Strong operating performance continued into FQ4 Record quarterly EBITDA* US$391m • All regions delivered excellent results • Graphic papers a healthy EBITDA* margin 17.9% Profit for the quarter US$26m • Packaging and speciality papers EBITDA* growth y-o-
Slide 5: EBITDA contribution split
EBITDA* contribution split 450 400 350 300 250 US$ 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 -50 FY18 FY19 FY20 FY21 FY22 -100 Pulp Packaging and speciality papers Graphic papers * Refer to the supplementary information in this presentation for a reconcilia
Slide 6: EBITDA reconciliation Q4 FY21 to Q4 FY22
EBITDA* reconciliation Q4 FY21 to Q4 FY22 Pulp – (US$3m) Packaging and speciality papers – US$153m Graphic papers – US$423m Energy – (US$97m) 800 Chemicals – (US$43m) 720 Purchased pulp and wood – (US$147m) Delivery cost – (US$54m) 640 560 480 US$ million 400 320 240 160 80 0 177 33 573 (341) (60) 1
Slide 7: Cost inflation developments
Cost inflation developments Major variable input cost/ton impact on the Group since Q1 FY2020 2.5 • Energy +112% 2.0 - Largely due to the Russian-Ukrainian conflict 1.5 • Pulp +39% • Chemicals +34% 1.0 • Delivery +47% - Global logistical challenges and fuel 0.5 inflation continue to negatively impac
Slide 8: Cost inflation developments: major variable input cost
Cost inflation developments Major variable input cost FY19 FY22 Delivery Delivery 12% Wood Wood 14% 18% 18% Energy 12% Pulp and other Energy 26% 18% Pulp and other 35% Chemicals 23% Chemicals 24% 8
Slide 9: Product contribution split
Product contribution split FY17 FY22 24% 36% EBITDA* excluding special items 49% 49% 27% 15% 19% 22% Sales volumes** 13% 53% 68% 25% * Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page 33 in our Q4 FY22 financial results
Slide 10: 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 1,879 1,800 1,793 US$ million 4.0 0.9 1,728 1,680 1,600 1.7 1,632 1,603 3.0 1,568 1,557 1,530 1,501 1,400 2.0 1,349 1,338 1,329 1,322 1,318 1,200 1.0 1,163 1,000 0.0 Q1 FY20*** Q2 FY20*** Q3 FY20***
Slide 11: Debt maturity profile
Debt maturity profile* Fiscal years Liquidity, US$ millions Debt Maturity , US$ millions 550 2028 Includes 2026 EUR400m bond 1,600 465 EUR450m bond 416 450 1,400 As of 12 October 2022, 2032 1,200 the 2026 bond reduced US$221m bond 350 to EUR240m following a 615 repurchase initiative 1,000 322 250 80
Slide 12: Cash flow and Capex
Cash flow and Capex Cash Flow, US$ millions Capital Expenditure, US$ millions 600 2018 2019 2020 2021 2022 500 1267 1300 1100 400 900 761 709 673 700 462 472 506 300 500 416 323 256 300 166 100 1 29 200 -100 -300 -254 -257 100 Cash generated from operations Free cash flow** Net cash generated (utili
Slide 13: Global ocean freight developments
Global ocean freight developments Schedule reliability as of September 2022 WCI* decreased to $3,383 per 40ft 90% 80% 70% 60% 50% 40% 30% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2018 2019 2020 2021 2022 Source: Sea-Intelligence, GLP Issue 134. Source: Drewry 13 * WCI – World Container Index.
Slide 14: Paper pulp prices
US$/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 NBSK Europe (US$) 2-May-19 NBSK Europe (EUR) 2-Jul-19 2-Sep-19 2-Nov-19 2-Jan-20 2-Mar-20 2-May-20 2-Jul-20 BHKP Europe (US$) BHKP Euro
Slide 15: Energy price volatility challenge
Energy price volatility challenge • Volatility in energy prices continues; natural gas prices decreased in recent weeks • Ongoing threat to gas and energy supplies poses a potential risk to our European business • To date, our energy risk mitigation strategies have successfully reduced cost impacts
Slide 16: Segmental overview
Segmental overview 16
Slide 17: Pulp: Highlights Q4 FY22
Pulp Highlights Q4 FY22 Pulp 450 40% Sales tons +44% 400 350 35% 30% 25% Tons (‘000) 300 year-on-year** 250 200 20% 15% 10% 150 5% 100 0% 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 Price per ton Volume EBITDA margin flat ye
Slide 18: Packaging and speciality papers: Highlights Q4 FY22
Packaging and speciality papers Highlights Q4 FY22 Packaging and speciality papers 450 24% Sales tons 400 350 20% 16% Tons (‘000) 300 +3% year-on-year** 250 200 12% 8% 150 4% 100 0% 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 2
Slide 19: Graphic papers: Highlights Q4 FY22
Graphic papers Highlights Q4 FY22 Graphic papers 1,100 23% Sales tons -4% 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 Price per ton Volume E
Slide 20: Sappi Europe: Highlights Q4 FY22
Sappi Europe Highlights Q4 FY22 • Excellent quarterly performance; EBITDA €130 million Sales tons flat year-on-year** • Favourable market conditions supported further selling price increases but insufficient to offset significant cost inflation Price per ton (EUR) • Graphic paper segment continued t
Slide 21: Sappi North America: Highlights Q4 FY22
Sappi North America Highlights Q4 FY22 • Another record quarterly EBITDA of US$143 million Sales tons +1% year-on-year** • Continued tight US graphic paper markets supported further selling price increases Price per ton (US$) • Customer demand for paperboard products significantly exceeded our capac
Slide 22: Sappi Southern Africa: Highlights Q4 FY22
Sappi Southern Africa Highlights Q4 FY22 • Strong performance in the quarter Sales tons** +28% • Improved performance of the pulp business year-on-year*** ‒ Regular breakbulk shipments increased sales volumes ‒ Successful trial to export Ngodwana pulp from Maputo Price per ton (ZAR)** ‒ Weaker ZAR/U
Slide 23: 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 24: 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 25: Divestment of European graphic paper mills
Divestment of European graphic paper mills Sappi has concluded an agreement with AURELIUS Investment Lux One S.à.r.l. to divest three European graphic paper mills with combined capacity of 1,230,000 tons per annum Kirkniemi (Finland) • Consideration €272 million • Cash and retained receivables €212
Slide 26: 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 27: 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. 27
Slide 28: Global People & Prosperity Targets FY22
Global People & Prosperity Targets FY22 Safety - LTIFR* target achieved in all regions Specific for Sappi Southern Africa - Strong safety focus Gender diversity - Target for women in senior positions achieved - SEU needs further improvement Sustainable procurement - Target achieved; 74% of our group
Slide 29: Global Planet Targets FY22
Global Planet Targets FY22 Specific process water usage* - Target not achieved - Water usage in KwaZulu-Natal mills impacted by floods requiring stop-start and Saiccor Mill instability during the year Energy efficiency - Target not achieved - SSA below target due to operational disruptions relating
Slide 30: 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 GHG emissions 41.5% per ton meet the goals of the Paris Agreement of product by 2030 from a 2019 base year*. Greenhouse gas e
Slide 31: Outlook
Outlook 31
Slide 32: Outlook
Outlook • Macroeconomic uncertainty will likely weaken demand in our graphic paper and dissolving pulp segments in Demand upcoming quarters • Demand for packaging and speciality papers is more resilient in economic downturns • Rising input costs remain a risk in the year ahead Cost inflation althoug
Slide 33: Outlook continued
Outlook Continued • The Board approved a US$418 million investment for conversion and expansion of Somerset PM2 from coated woodfree graphic paper to solid bleached sulphate board Packaging investment (SBS) • Project funded from free cash from operations (FY2023 US$70 million) • Capital expenditure
Slide 34: Thank you
Thank you 34
Slide 35: Supplementary information
Supplementary information 35
Slide 36: EBITDA and operating profit
EBITDA and operating profit Excluding special items* 450 400 391 318 350 371 300 337 300 259 250 US$ 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 Q1 FY19 Q
Slide 37: 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 38: Packaging and speciality papers product portfolio
Packaging and speciality papers Product portfolio Packaging Speciality Flexible packaging Paperboard Containerboard Label & self-adhesive Casting and release Dye sublimation Tissue papers papers papers 38
Slide 39: Graphic papers product portfolio
Graphic papers Product portfolio 39
Slide 40: Biomaterials product portfolio
Biomaterials Product portfolio 40
Slide 41: Dissolving pulp product portfolio
Dissolving pulp Product portfolio 41
Slide 42: 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 43: Paperboard segments North America
Paperboard segments North America Quality Premium Premium Spectro (commercial print, (92 brightness) premium folding carton) 220,000 tons (10%) Performance (88 brightness) 2.1 million tons Performance (45%) Proto and Proto Litho Food service (folding carton and litho & cup stock lamination applicati
Slide 44: Sappi Europe
Sappi Europe Q4 FY22 Q3 FY22 Q4 FY21 Tons sold (‘000) 757 780 757 - Packaging and speciality papers 153 163 133 - Graphic papers 604 617 624 Sales (EURm) 982 943 589 Price/Ton (EUR) 1,297 1,209 778 Cost/Ton* (EUR) 1,162 987 806 Operating profit excluding special items** (EURm) 102 173 (21) EBITDA ex
Slide 45: 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 46: Sappi North America
Sappi North America Q4 FY22 Q3 FY22 Q4 FY21 Tons sold (‘000) 423 437 418 - Pulp 111 116 107 - Packaging and speciality papers 135 132 130 - Graphic papers 177 189 181 Sales (US$m) 586 566 458 Price/Ton (US$) 1,385 1,295 1,096 Cost/Ton* (US$) 1,099 1,073 940 Operating profit excluding special items**
Slide 47: Coated paper deliveries and prices United States
Coated paper Deliveries and prices United States* 1.5 1.4 1.3 1.2 1.1 1.0 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 Q1 08 Q1 09 Q1 10 Q1 11 Q1 12 Q1 13 Q1 14 Q1 15 Q1 16 Q1 17 Q1 18 Q1 19 Q1 20 Q1 21 Q1 22 Domestic CWF shipments Domestic CWF purchases RISI price CFS #3 60 lb rolls * US industry purchases defi
Slide 48: Sappi South Africa
Sappi South Africa Q4 FY22 Q3 FY22 Q4 FY21 Tons sold* (‘000) 404 286 316 - Pulp 267 143 156 - Packaging and speciality papers 105 104 121 - Graphic papers 32 39 39 Sales* (ZARm) 5,924 3,858 3,969 Price/Ton* (ZAR) 14,663 13,490 12,560 Cost/Ton** (ZAR) 10,923 12,741 10,051 Operating profit excluding s
Slide 49: Dissolving pulp prices
US$/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 Dissolving pulp Prices Jan 2019 Apr 2019 Imp SW DP Jul 2019 Oct 2019 Jan 2020 Apr 2020 Imp HW DP Jul 2020 Oct 2020 Jan 2021 Apr 2021 China ori
Slide 50: Textile fibre prices
US$\ton 1,000 1,500 2,000 2,500 3,000 3,500 4,000 0 500 Jan 2018 Source: CCF Group. Apr 2018 Jul 2018 Oct 2018 Textile fibre Prices Jan 2019 Cotton 328 Apr 2019 Jul 2019 Oct 2019 Cotton "A" Index Jan 2020 Apr 2020 Jul 2020 PSF 1.4 D Oct 2020 Jan 2021 Apr 2021 VSF 1.2 D Jul 2021 Oct 2021 VSF 1.5 D Ja
Slide 51: Dissolving pulp market indicators
Dissolving pulp Market indicators Retail textile and apparel sales by region/country Dissolving pulp pricing vs Viscose staple fibre (VSF) Indexed 2017=100 Source: US Census, National Bureau of Statistics, Eurostat. Indexing by Hawkins Wright. Source: CCF Group. Estimates for the US are based on dat
Slide 52: US textile value chain inventory and sales
US textile value chain inventory and sales Significant inventory build through 2022 responding to low inventories in 2021 Sales still growing; +5% y-o-y 120,000 45,000 August 2022 vs August 2021 40,000 100,000 • Wholesale Inventory +70% 35,000 • Retail Inventory +28% • Total Inventory + 43% 80,000 3
Slide 53: Cash flow
Cash flow US$m Q4 FY22 Q3 FY22 Q4 FY21 Cash generated from operations 352 351 141 Movement in working capital 78 (71) 63 Finance costs paid (50) (14) (24) Finance income received 5 2 1 Taxation (paid) refund (8) (7) (5) Cash generated from operating activities 377 261 176 Cash utilised in investing
Slide 54: EBITDA and operating profit reconciliation
EBITDA and operating profit Excluding special items* reconciliation to reported operating profit US$m Q4 FY22 Q3 FY22 Q4 FY21 EBITDA excluding special items* 391 371 177 Depreciation and amortisation (73) (71) (85) Operating profit excluding special items* 318 300 92 Special items* – gains (losses)
Slide 55: 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 56: 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 57: 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 = 81.8% 5% Improvement in specific total energy (GJ/adt) 1
Slide 58: 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 59: Innovative R&D focus
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 60: Thank you
Thank you 60