Sappi Limited · JSE:SAP
Sappi — Q2 FY23 Earnings Presentation
49 slides from Sappi's earnings presentation, May 11, 2023
Slide 1: Q2 FY23 financial results
Steve Binnie Chief Executive Officer, Sappi Limited 11 May 2023 Q2 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: Summary Q2 FY23
Summary Q2 FY23 Excluding special items* Net debt to EBITDA* EPS* EBITDA 11 US cents US$167m Profit for the quarter: US$69m 1.0x • Challenging global economy and significantly weaker paper markets • Global pulp markets came under pressure • Paper selling prices remained relatively stable • Profitabi
Slide 4: Product contribution split
Product contribution split EBITDA* excluding special items Sales volumes** 100% 100% 90% 90% 80% 80% 70% 70% Pulp 60% 60% 50% 50% Packaging and speciality papers 40% 40% 30% Graphic papers 30% 20% 20% 10% 10% 0% 0% FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 LTM - FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22
Slide 5: EBITDA reconciliation Q2 FY22 to Q2 FY23
EBITDA* reconciliation Q2 FY22 to Q2 FY23 Pulp – (US$12m) 400 Packaging and speciality papers – (US$30m) Graphic papers – (US$187m) Wood – (US$60m) Energy, chemicals, purchased pulp and other – (US$90m) Delivery cost – (US$2m) 320 US$ million 240 160 80 0 337 (229) 198 (152) 8 (13) 18 167 Q2 FY22 EB
Slide 6: 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 2.2 1,793 US$ million 4.0 1.0 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 1,241 1.0 1,225 1,163 1,000 0.0 Q1 FY20*** Q2 FY20*** Q3 FY20*** Q4 FY20*** Q
Slide 7: Debt maturity profile
Debt maturity profile* Fiscal years Liquidity Debt maturity 1,400 2028 EUR400m bond 500 459 1,200 Includes 2026 EUR240m bond 1,000 400 2032 670 US$ million US$221m bond 286 800 300 293 600 200 221 2025 ZAR1.3bn 400 convertible bond** 557 84 100 78 200 25 25 66 63 20 90 0 0 Mar-23 2023 2024 2025 2026
Slide 8: Cash flow and capex
Cash flow and capex Cash flow Capital expenditure 1,400 600 1,267 1,200 500 1,000 800 761 400 709 673 600 506 462 472 416 442 300 400 323 303 256 200 166 200 61 1 29 0 100 -200 -254 -257 -400 0 2018 2019 2020 2021 2022 Mar-23 YTD 2017 2018 2019 2020 2021 2022 2023E* Cash generated from operations Fr
Slide 9: Disciplined capital allocation
Disciplined capital allocation Category Strategic priority FY23 Targets / Achievements High Regulatory & External regulatory & Mandatory license to operate US$60 million for sustainability environmental environmental requirements Mandatory to meet ESG goals Mar-23 YTD free cash flow US$303 million A
Slide 10: Cost inflation developments
Cost inflation developments Major variable input cost/ton impact on the group since Q1 FY20 2.5 • Curtailment impacted operational efficiencies 2.0 • Total variable costs +1% q-o-q* 1.5 • Energy costs +2% q-o-q*; winter season 1.0 and curtailment impact in North America 0.5 0.0 Q1 Q2 Q3 Q4 Q1 Q2 Q3
Slide 11: Paper pulp prices
US$/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$) NBSK Europe (EUR) 2-Jul-19 2-Sep-19 2-Nov-19 2-Jan-20 2-Mar-20 2-May-20 2-Jul-20 2-Sep-20 2-Nov-20 BHKP Euro
Slide 12: European energy price developments
European energy price developments • European gas demand is still well below five-year average • Sufficient LNG supply as well as pipeline supply from Norway • Continued high gas storage levels across Europe • Effective gas replacement by coal, nuclear and biomass • High renewable power generation,
Slide 13: Segmental overview
Segmental overview 13
Slide 14: Summary Q2 FY23 (Pulp)
Summary Q2 FY23 Sales tons -7% Price per ton -1% EBITDA* margin year-on-year** year-on-year** 17.7% 450 40% 400 35% 350 30% 25% Tons (‘000) 300 20% 250 15% 200 10% 150 5% 100 0% Q1 18 Q2 18 Q3 18 Q4 18 Q1 19 Q2 19 Q3 19 Q4 19 Q1 20 Q2 20 Q3 20 Q4 20 Q1 21 Q2 21 Q3 21 Q4 21 Q1 22 Q2 22 Q3 22 Q4 22 Q1
Slide 15: Packaging and speciality papers Summary Q2 FY23
Summary Q2 FY23 and speciality Sales tons -29% year-on-year** Price per ton +14% year-on-year** EBITDA* margin 10.5% 450 24% 400 20% 350 16% Tons (‘000) 300 12% 250 8% 200 150 4% 100 0% Q1 18 Q2 18 Q3 18 Q4 18 Q1 19 Q2 19 Q3 19 Q4 19 Q1 20 Q2 20 Q3 20 Q4 20 Q1 21 Q2 21 Q3 21 Q4 21 Q1 22 Q2 22 Q3 22
Slide 16: Graphic papers Summary Q2 FY23
Summary Q2 FY23 Sales tons -42% Price per ton +24% EBITDA* margin year-on-year** year-on-year** 8.9% 1,100 23% 1,000 18% 900 13% Tons (‘000) 800 8% 700 3% 600 -2% 500 -7% 400 -12% Q1 18 Q2 18 Q3 18 Q4 18 Q1 19 Q2 19 Q3 19 Q4 19 Q1 20 Q2 20 Q3 20 Q4 20 Q1 21 Q2 21 Q3 21 Q4 21 Q1 22 Q2 22 Q3 22 Q4 22
Slide 17: Regional segments Summary Q2 FY23
Regional segments Summary Q2 FY23 Sappi Europe Sappi North America Sappi Southern Africa Sales tons -45% Sales tons -26% Sales tons** -9% year-on-year** year-on-year** year-on-year*** Price per ton (EUR) Price per ton (US$) Price per ton (ZAR)** +29% year-on-year** +15% year-on-year** +17% year-on-y
Slide 18: Regional segments continued
Regional segments continued Summary Q2 FY23 Sappi Europe Sappi North America Sappi Southern Africa 900 500 25% 500 35% 23% 800 30% 18% 400 20% 400 25% 700 13% 15% 300 300 20% 8% 600 10% 15% 3% 200 200 10% 500 5% -2% 5% 400 100 0% 100 -7% 0% 300 -12% 0 -5% 0 -5% Q1 18 Q3 18 Q1 19 Q3 19 Q1 20 Q3 20 Q1
Slide 19: Our business strategy Thrive25
Our business strategy Thrive25 What this means Strategic objectives Drive operational excellence • Achieve zero fatalities and at least a 10% reduction in LTIFR pa • Maximise production outputs • Strengthen our safety-first culture • Gain cost advantage through a global footprint • Continuously impr
Slide 20: Sustainability is at the core of our business
Who we are Sustainability is at the core of our business. Every solution we create supports our goal to make everyday products more sustainable. We know that the long-term sustainability of our business will only be ensured by delivering sustained value for our stakeholders. We are a sustainable bus
Slide 21: ESG - Continuously rethinking what we do and how we do it
ESG - Continuously rethinking what we do and how we do it Our commitment to sustainable growth Awarded Platinum Level in sustainability performance by independent rating agency EcoVadis Validated Sappi Forests Science-Based 100% FSC- and GHG reduction 2022 Group PEFC-certified target Sustainability
Slide 22: Outlook
Outlook 22
Slide 23: Outlook
Outlook Cost Demand inflation • The short-term DP supply/demand • Some relief may be expected from landscape is expected to remain lower input and delivery costs as relatively balanced many variable cost categories have passed their pricing peak, and we • Paper market conditions are anticipate input
Slide 24: Outlook Continued
Outlook Continued Strategy Capital Overall impact expenditure on Q3 FY23 • We remain committed to our • Capital expenditure in FY2023 is • The third quarter is seasonally the strategy to reduce exposure to estimated to be US$410 million; weakest in terms of demand for our graphic paper markets while
Slide 25: Thank you
sappi . [AO 2 \ - J th a 4 Thank you | ES 25
Slide 26: Supplementary information
Supplementary information 26
Slide 27: EBITDA and operating profit
EBITDA and operating profit Excluding special items* 450 400 391 318 350 371 300 337 300 259 290 225 250 US$ million 240 200 224 161 211 148 142 197 128 187 185 150 177 117 172 109 167 105 101 145 155 92 139 85 131 100 118 64 112 62 52 98 48 82 31 50 26 16 0 -5 -50 -52 -100 Q1 FY18 Q2 FY18 Q3 FY18 Q
Slide 28: Packaging papers
Packaging papers • Paperboard • Flexible packaging • Containerboard 28
Slide 29: Speciality papers
Speciality papers • Label and self-adhesive • Casting & release • Dye sublimation • Tissue 29
Slide 30: Packaging and speciality papers Production facilities
Packaging and speciality papers Production facilities Alfeld Mill (Germany) Ehingen Mill (Germany) Rockwell Solutions (Scotland) Flexible packaging, label paper, Containerboard Functional papers and flexible paperboard, silicone base paper, packaging, coated barrier film functional paper Carmignano
Slide 31: Packaging and speciality papers Volume growth 2015 to 2023
Packaging and speciality papers Volume growth 2015 to 2023 1,800 1,600 1,600 1,488 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 32: Paperboard segments North America
Paperboard segments North America 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 applications) (88
Slide 33: Sappi Europe
Sappi Europe Q2 FY23 Q1 FY23 Q2 FY22 Tons sold (‘000) 438 568 801 - Packaging and speciality papers 110 124 167 - Graphic papers 328 444 634 Sales (EURm) 592 783 839 Price/Ton (EUR) 1,352 1,379 1,047 Cost/Ton* (EUR) 1,352 1,250 925 Operating profit excluding special items** (EURm) - 73 98 EBITDA exc
Slide 34: 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 Q1 23 CWF demand MCR demand CWF 100 gsm sheets LWC 60 gsm offset reels * Western Europe shipments
Slide 35: Sappi North America
Sappi North America Q2 FY23 Q1 FY23 Q2 FY22 Tons sold (‘000) 330 378 445 - Pulp 108 114 121 - Packaging and speciality papers 91 111 133 - Graphic papers 131 153 191 Sales (US$m) 458 526 536 Price/Ton (US$) 1,388 1,392 1,204 Cost/Ton* (US$) 1,258 1,151 1,007 Operating profit excluding special items*
Slide 36: Coated paper Deliveries and prices United States
Coated paper Deliveries and prices United States* 1.5 1.4 1.3 1.2 1.1 1.0 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 Q1 08 Q1 09 Q1 10 Q1 11 Q1 12 Q1 13 Q1 14 Q1 15 Q1 16 Q1 17 Q1 18 Q1 19 Q1 20 Q1 21 Q1 22 Q1 23 Domestic CWF shipments Domestic CWF purchases RISI price CFS #3 60 lb rolls * US industry purchase
Slide 37: Sappi Southern Africa
Sappi Southern Africa Q2 FY23 Q1 FY23 Q2 FY22 Tons sold* (‘000) 399 381 439 - Pulp 260 243 275 - Packaging and speciality papers 98 97 122 - Graphic papers 41 41 42 Sales* (ZARm) 6,231 6,250 5,879 Price/Ton* (ZAR) 15,617 16,404 13,392 Cost/Ton** (ZAR) 13,213 13,493 11,317 Operating profit excluding
Slide 38: Dissolving pulp prices
US$/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 Jul 2020 Imp HW DP Oct 2020 Jan 2021 Apr 2021 Jul 2021
Slide 39: Textile fibre prices
US$\ton 1,000 1,500 2,000 2,500 3,000 3,500 4,000 0 500 Jan 2018 Source: CCF Group. Apr 2018 Jul 2018 Oct 2018 Jan 2019 Textile fibre Prices Apr 2019 Cotton 328 Jul 2019 Oct 2019 Jan 2020 Cotton "A" Index Apr 2020 Jul 2020 Oct 2020 PSF 1.4 D Jan 2021 Apr 2021 Jul 2021 VSF 1.2 D Oct 2021 Jan 2022 Apr
Slide 40: Dissolving pulp Market indicators
Dissolving pulp Market indicators Retail textile and apparel sales by region/country Dissolving pulp pricing vs Viscose staple fibre (VSF) (Indexed 2017=100) Source: US Census, National Bureau of Statistics, Eurostat. Indexing by Hawkins Wright. Source: CCF Group. Estimates for the US are based on d
Slide 41: US textile value chain inventory and sales
US textile value chain inventory and sales 120,000 30,000 Significant inventory build through 2022, responding to low inventories 100,000 25,000 in 2021; inventories started reducing in November 2022. 80,000 20,000 Retail inventories normalised, but Retail sales (US$) wholesale inventories are still
Slide 42: Cash flow
Cash flow US$m Q2 FY23 Q1 FY23 Q2 FY22 Cash generated from operations 148 294 328 Movement in working capital 99 (174) (143) Finance costs paid (26) (39) (10) Finance income received 8 7 2 Taxation (paid) refund (11) (3) (4) Dividend paid (85) - - Cash generated from operating activities 133 85 173
Slide 43: EBITDA and operating profit reconciliation
EBITDA and operating profit Excluding special items* reconciliation to reported operating profit US$m Q2 FY23 Q1 FY23 Q2 FY22 EBITDA excluding special items* 167 290 337 Depreciation and amortisation (66) (65) (78) Operating profit excluding special items* 101 225 259 Special items* – gains (losses)
Slide 44: Conversion and expansion of Somerset Mill PM2
Conversion and expansion of Somerset Mill PM2 • Conversion and expansion of Somerset Mill PM2 from 235,000 tons per annum CWF to 470,000 tons SBS • Approved by the board on 09 November 2022 • Class 10 engineering completed • Equipment orders Q2 FY23 • Start up H2 FY25 • Aligned with Thrive25 strateg
Slide 45: 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% 80% 5.8% year-on-year improvement De
Slide 46: 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 5% Share of renewable and clean Improvement in specific total baseline or energy energy (GJ/adt) higher Baseline = 79.1% 1
Slide 47: 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 share of renewable and clean energy 9% Improvement in specific total energy (GJ/adt) 10% 80% 3.1% year-on-year improv
Slide 48: 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 Dissolving pulp Emulsion stabiliser Textiles Pharmaceuticals Foodstuff
Slide 49: Thank you
sappi . [AO 2 \ - J th a 4 Thank you | ES 49