Sappi Limited · JSE:SAP
Sappi — Q4 2002 Earnings Presentation
39 slides from Sappi's earnings presentation, November 2002
Slide 1: Financial results for the fourth quarter and financial year ended September 2002
1 Financial results for the fourth quarter and financial year ended September 2002
Slide 2: Forward looking statements
2 Forward looking statements Certain statements in this report 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 indicate future earnings, savings, synergies, events, trend
Slide 3: Fourth quarter highlights
3 Fourth quarter highlights • Headline EPS - Quarter 30 US cents - Year 98 US cents 1,033 ZAR cents • Strong cash flow • US business improves • Dividend increased to 28 US cents
Slide 4: Financial summary
4 Financial summary Quarter ended Year ended* US$ millions Sep-01 Jun-02 Sep-02 2001 2002 Sales Vol (t 000's) 1,501 1,585 1,639 6,106 6,087 Sales 998 974 1,052 4,184 3,729 EBITDA 175 188 219 797 741 Operating Income 91 97 122 446 389 Note: * 2001 Audited statements & 2002 Reviewed statements
Slide 5: Financial summary
5 Financial summary Quarter ended Year ended* US$ millions Sep-01 Jun-02 Sep-02 2001 2002 Headline EPS 23 28 30 113 98 Basic EPS 20 29 32 59 95 Net Debt (US$m) 1,126 1,572 1,419 1,126 1,419 Net Debt / Tot Cap 30.4% 39.7% 37.0% 30.4% 37.0% Note: * 2001 Audited statements & 2002 Reviewed statements
Slide 6: Financial summary
6 Financial summary Quarter ended Year ended* Percent Sep-01 Jun-02 Sep-02 2001 2002 Margin - EBITDA 17.5 19.3 20.8 19.0 19.9 - Operating 9.1 10.0 11.6 10.7 10.4 RONA 11.1 11.8 13.0 13.1 11.3 ROE 9.9** 18.2 18.6 15.9** 14.2 Note: * 2001 Audited statements & 2002 Reviewed statements ** Before Mobile
Slide 7: Financial summary Cash Flow
7 Financial summary Cash Flow Quarter ended Year ended* US$ millions Sep-01 Jun-02 Sep-02 2001 2002 Cash from operations 164 205 226 771 744 +/- working capital 177 39 50 51 (42) - cash finance costs (42) (13) (35) (125) (103) - cash tax (41) (4) (26) (94) (89) - CAPEX (81) (47) (65) (303) (218) = F
Slide 8: Strategy
8 Strategy
Slide 9: The Sappi Strategy
9 The Sappi Strategy • Business focus • Coated fine paper • Supported by pulp integration • Geographic diversity • Lowest cost producer • Leading market positions • Customer focused • Market driven • Global brands • Efficient use of capital • Intolerance of non-performing assets • Re-invest in high
Slide 10: Geographic diversity Sales by Region (US$)
10 Geographic diversity Sales by Region (US$)* Where product is Where product is manufactured sold 47% 44% 32% 34% 21% 9% 13% North America Europe Southern Africa Far East & Other * For the year ended September 2002
Slide 11: Financial performance
i x “4 Financial performance sappi The word for fine paper
Slide 12: Headline EPS (US$) US cents per share
US cents per share 98 0 10 20 30 40 50 60 A ve Q 19 9 Q Earnings 29 9 Q 39 9 Q 49 9 Q 10 0 Q 20 0 Q 30 0 Q 40 0 Q 10 1 Q 20 1 Q 30 1 Q 40 1 Q 10 2 Q 20 2 Q 30 2 Q 40 2 Headline EPS (US$) 12
Slide 13: Headline EPS (Euros and ZAR)
SA cents per share 98 0 50 100 150 200 250 300 350 400 A ve Q 19 9 Q Earnings 29 9 Q 39 9 Q 49 9 Q 10 0 Q 20 0 Q Headline EPS (Euros) 30 0 Q 40 0 Q 10 1 Q 20 1 Q 30 1 Q 40 1 Q 10 2 Q 20 2 Q 30 2 Q 40 2 0 10 20 30 40 50 60 70 80 Euro cents per share Headline EPS (ZAR) 13
Slide 14: Return on equity ROE (after tax)
14 Return on equity ROE (after tax) 35 ROE WACC 30 25 20 % 15 10 5 0 * * 96 97 98 99 0 0 0 0 1 1 1 1 2 2 2 2 10 20 30 40 10 20 30 40 10 20 30 40 19 19 19 19 Q Q Q Q Q Q Q Q Q Q Q Q * Before Mobile closure costs
Slide 15: Finance costs
15 Finance costs* 300 250 200 US$ MM 150 100 50 0 1998 1999 2000 2001 2002 * Net finance costs before capitalised interest and excluding once-off items
Slide 16: Capex control: Capex vs depreciation
16 Capex control Capex vs depreciation* 400 Capex Depreciation 350 300 US$ MM - 250 200 150 100 50 0 1998 1999 2000 2001 2002 * Depreciation excludes fellings, Capex excludes plantation & timberlands
Slide 17: Divisional performance: Sappi Fine Paper
17 Divisional performance Sappi Fine Paper
Slide 18: Market conditions: Coated fine paper
18 Market conditions Coated fine paper • Ad spend and ad print pages slow to pick up • Low margins in North America depress overall performance • Significant scope in North American business for further improvement • Operating income increases 20% to $78m • RONOA of 10.4%
Slide 19: Market conditions: Coated free sheet prices
19 Market conditions Coated free sheet prices 1,300 1,300 1,200 1,200 1,100 1,100 US$/Short ton 1,000 1,000 EUR/Ton 900 900 800 800 700 700 600 600 500 500 Apr Apr Apr Apr Apr Apr Apr Apr Oct Oct Oct Oct Oct Oct Oct Jul Jul Jul Jul Jul Jul Jul Jul Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan
Slide 20: Market conditions: US magazine ad pages
Year on year % change 0% -30% -20% -10% 10% 20% 30% Jan-84 Jan-85 Jan-86 Jan-87 Jan-88 Jan-89 Market conditions Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 SOURCE: Publishers Information Bureau Magazine Ad Pages yoy % change Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 US Magazine ad pages 20
Slide 21: Market conditions: US + Europe CWF purchases
21 Market conditions US + Europe CWF Purchases 1,200,000 Shipments in '000 metric tons 1,100,000 1,000,000 900,000 800,000 700,000 600,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 1998 1999 2000 2001 2002 SOURCE: Cepifine, AFPA
Slide 22: Market conditions: Year-on-year growth in CWF purchases
% 0% 5% -20% -15% -10% -5% 10% 15% 20% Jan-97 Apr-97 Jul-97 Oct-97 Jan-98 Europe Apr-98 Jul-98 Market conditions Oct-98 Jan-99 US Apr-99 Jul-99 Oct-99 Jan-00 Apr-00 Jul-00 Oct-00 SOURCE: Cepifine, AFPA Jan-01 Apr-01 Jul-01 Oct-01 Jan-02 Apr-02 Jul-02 Year-on-year growth in CWF purchases (3mma) 22
Slide 23: Market conditions: US manufacturer CWF inventories
Market conditions 23 US manufacturer CWF inventories 750,000 700,000 Inventories in short tons 650,000 600,000 550,000 500,000 450,000 400,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 1998 1999 2000 2001 2002 SOURCE: AFPA
Slide 24: Operating performance Sappi Fine Paper
24 Operating performance Sappi Fine Paper Q4 Year 2001 2002 2001 2002 Sales (US$m) 826 905 3,452 3,156 Cost per ton (US$ Index)* 100 95 100 98 EBITDA Margin (%) 15.7 17.2 14.9 16.1 RONOA (%) 10.5 10.4 9.7 8.5 * Excludes purchased pulp
Slide 25: Operating performance Sappi Fine Paper Europe
25 Operating performance Sappi Fine Paper Europe Q4 Year 2001 2002 2001 2002 Sales (US$m) 444 459 1,781 1,744 Cost per ton (US$ Index)* 100 108 100 103 EBITDA Margin (%) 21.1 20.9 18.3 21.7 RONOA (%) 17.0 14.6 13.3 15.8 • Solid results despite 87kt curtailment • Sales volumes up 2% on Q401 & 3% on Q
Slide 26: Operating performance Sappi Fine Paper North America
Operating performance 26 Sappi Fine Paper North America Q4 Year 2001 2002 2001 2002 Sales (US$m) 323 388 1,442 1,197 Cost per ton (US$ Index)* 100 95 100 103 EBITDA Margin (%) 8.1 12.1 10.4 7.4 RONOA (%) nil 4.2 3.6 nil • Business returns to profitability • Cloquet integration on track for 20 US cen
Slide 27: Operating performance Sappi Fine Paper South Africa
Operating performance 27 Sappi Fine Paper South Africa Q4 Year 2001 2002 2001 2002 Sales (US$m) 59 58 229 215 Cost per ton (US$ Index)* 100 93 100 82 EBITDA Margin (%) 16.9 22.4 16.7 19.5 RONOA (%) 32.3 46.0 29.2 35.8 • Order book remains strong • Average prices down slightly in USD but 26% up in Ra
Slide 28: Divisional performance: Sappi Forest Products
28 Divisional performance Sappi Forest Products
Slide 29: Market conditions: Pulp inventories days of supply
29 Market conditions Pulp Inventories Days of Supply 80 70 Norscan Utipulp Non-Norscan 60 50 Days 40 30 20 10 0 96 97 98 99 2000 2001 2002 SOURCE: AF & PA and Utipulp
Slide 30: Operating performance Sappi Forest Products
30 Operating performance Sappi Forest Products Q4 Year 2001 2002 2001 2002 Sales (US$m) 172 147 732 573 Cost per ton (US$ Index)* 100 84 100 79 EBITDA Margin (%) 29.1 38.8 38.3 37.4 RONOA (%) 14.4 21.3 22.0 18.3 • Demand in domestic market remains strong • International demand for pulp improved slig
Slide 31: Recent developments
i x “4 Recent developments sappi The word for fine paper
Slide 32: Acquisition of Potlatch MPPD update
32 Acquisition of Potlatch MPPD update • Good progress on integration • Benefits on target • Workforce reduced • Sales force integrated • Brands rationalised • Brainerd products transferred • Pulp mill profitability increased • Synergy target $120 million in 2003 • Conservative estimate 20 US cents
Slide 33: Debt maturity profile
33 Debt maturity profile - Average 10 years • US denominated bond issue • $500 million 10 year and $250 million 30 year • 10 year issued at 175 basis point spread and 30 year at 195 basis point spread 600 500 US$ millions 400 300 200 100 0 s s s s s s s s s s + ar ar ar ar ar ar ar ar ar ar s ar ye
Slide 34: Share buy-back
34 Share buy-back • 13 million shares purchased since December 2000 • 5,5% of share capital • Shares purchased at an average price of R64.16 per share
Slide 35: Sappi ADR share price vs S&P Index
Index 40 60 80 100 120 140 160 180 200 02-Jan-01 220 02-Feb-01 02-Mar-01 02-Apr-01 02-May-01 02-Jun-01 02-Jul-01 Share price (ADR) S & P Index 02-Aug-01 02-Sep-01 02-Oct-01 02-Nov-01 02-Dec-01 02-Jan-02 S&P FP Index 02-Feb-02 02-Mar-02 02-Apr-02 SOURCE: I-Net Bridge 02-May-02 02-Jun-02 02-Jul-02 02-
Slide 36: Sappi JSE share price
Index 100 125 150 175 200 225 250 275 300 50 75 02-Jan-01 02-Feb-01 02-Mar-01 02-Apr-01 02-May-01 02-Jun-01 Industrial 25 02-Jul-01 Share price (JSE) 02-Aug-01 02-Sep-01 02-Oct-01 02-Nov-01 02-Dec-01 02-Jan-02 02-Feb-02 R/$ Exchange Rate 02-Mar-02 02-Apr-02 SOURCE: I-Net Bridge 02-May-02 02-Jun-02 S
Slide 37: Outlook
37 Outlook
Slide 38: Outlook
38 Outlook • End to consumer destocking • Pulp demand/pricing should improve • Advertising spend starting to recover • Apparent demand growth despite flat economy • Curtail production to match demand • Cautiously optimistic • Reasonable earnings growth next year
Slide 39: www.sappi.com
39 View the full results at www.sappi.com