Sappi Limited · JSE:SAP
Sappi — Q4 FY2018 Earnings Presentation
50 slides from Sappi's earnings presentation, Nov 15, 2018
Slide 1: Q4 FY18 financial results delivering on strategy
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
Slide 2: Forward-looking statements and Regulation G
Forward-looking statements and Regulation G Forward-looking statements 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 or indicate future
Slide 3: Summary
Summary 3
Slide 4: Highlights – Q4 2018
Highlights – Q4 2018 Up 1% Up 5% Flat EBITDA ex special items Profit for the period EPS ex-special items US$224m US$107m US$0.19 o Good sales quarter, impacted somewhat by low starting inventories o Higher paper pulp prices offset cost pressures o DWP prices impacted by hedging translation losses o
Slide 5: Highlights – FY 2018
Highlights – FY 2018 Up Up Up Up Up 10% 18% 13% 72% 19% Net sales Spec. and Pack. Dividend per share Expansion capex Net Debt US$5.8bn Volumes US$0.17/share US$374m US$1,568m 1,009,000t o 3 major projects concluded during the year – Saiccor, Ngodwana and Somerset o Acquisition of Cham Paper - return
Slide 6: EBITDA and operating profit
EBITDA and operating profit Excluding special items* 250 Key ratios Q4 FY16 Q4 FY17 Q4 FY18 224 221 200 Net debt/LTM EBITDA 1.9 1.7 2.1 209 Interest cover 7.3 9.1 11.0 152 148 145 150 EBITDA % 15.6 15.7 14.6 US$ million ROCE % 20.9 20.2 17.0 100 50 0 Q4 FY16 Q4 FY17 Q4 FY18 EBITDA Operating profit *
Slide 7: EBITDA bridge
EBITDA* bridge Q4 FY17 to Q4 FY18 Sales revenue 340 300 US$ million 260 220 180 140 221 6 125 (89) (40) (4) 5 224 Q4 FY17 EBITDA Sales volume Price & mix Variable & delivery Fixed costs Other Exchange rate Q4 FY18 EBITDA costs Notes: 1. All variances were calculated excluding Sappi Forestry. Sept 2.
Slide 8: Product contribution split – LTM
Product contribution split – LTM EBITDA excluding special items Operating profit excluding special items Specialised Cellulose 32% 42% 40% Specialities & 52% Packaging Papers Printing Papers 16% 18% * Refer to the supplementary information in this presentation for a reconciliation of EBITDA to repor
Slide 9: Maturity profile
Maturity profile Fiscal years 600 544 500 EUR450m bond 548 EUR350m bond 400 363 376 US$ million 300 221 200 US$221m bond 100 84 81 70 29 47 46 0 0 2019 2020 2021 2022 2023 2024 2025 2032 Cash Short-term SPH term debt Securitisation SSA 9
Slide 10: Cash flow
Cash flow Dividend per share Acquisition of subsidiary and other Net finance costs paid 17 Taxation paid 15 123 66 11 73 Dividend paid 81 FY16 FY17 FY18 Cash generated by operating activities US$630 m Expansion Capex 374 167 Maintenance Capex 374 407 Expansion Capex 217 86 Cash utilised US$254 milli
Slide 11: Capex development
Capex development 700 600 500 US$ million 400 300 200 100 0 2013 2014 2015 2016 2017 2018 2019E Maintenance Efficiency and expansion 11
Slide 12: Update on projects
Update on projects Q4 FY18 Specialities and Packaging Papers Specialised Cellulose Maastricht completed: Ngodwana: New product trials are testing well, ramp-up Mill now running at planned 250ktpa to full volumes by 2021 Saiccor: Ehingen completed: production issues are behind us, n
Slide 13: Divisional overview
Divisional overview 13
Slide 14: Global P&W paper market trends
Global P&W paper market trends Supply and demand Demand softening globally Capacity closures/conversions keep operating rates largely in balance – mostly to containerboard or testliner Substitution and conversions benefitted coated mechanical grades Selling prices and input costs Paper p
Slide 15: Global speciality & packaging paper market trends
Global speciality & packaging paper market trends Supply and demand 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 packaging, particularly in EU. Selling prices and in
Slide 16: Global DWP market trends
Global DWP market trends Supply and demand Record year for growth in VSF capacity Most DWP capacity growth coming from integrated VSF producers Selling prices and input costs DWP prices likely to be range-bound between BEK and VSF Weakening RMB places further pressure on US$ input costs
Slide 17: Sappi Europe
Sappi Europe BHKP Europe (EUR) CWF-S 100g, Germany 950 80 14% EBITDA* EBITDA Margin* 900 12% 60 850 10% Eur million 800 8% 40 750 6% 700 4% 20 650 2% 600 0 0% Apr-17 Oct-17 Apr-18 Oct-18 Jan-17 Jan-18 Jul-17 Jul-18 Q4 FY15 Q4 FY16 Q4 FY17 Q4 FY18 Good result from higher paper selling prices, deman
Slide 18: Sappi North America
Sappi North America No 3 Coated freesheet - 60 lb (90g) rolls US$/ton - US East** 60 16% 1100 EBITDA* EBITDA Margin* 14% 1050 12% 40 1000 US$ million 10% 8% 950 6% 20 900 4% 850 2% 0 0% 800 Q4 FY15 Q4 FY16 Q4 FY17 Q4 FY18 Jul-17 Jul-18 Jan-17 Jan-18 Apr-17 Oct-17 Apr-18 Oct-18 Profitability improv
Slide 19: Sappi Southern Africa
Sappi Southern Africa China market price – Hardwood DWP (US$/ton)** 1600 40% 1000 EBITDA* EBITDA Margin* 1400 35% 975 30% 950 1200 ZAR million 25% 925 1000 20% 900 800 15% 875 600 10% 850 400 5% 825 200 0% 800 Q4 FY15 Q4 FY16 Q4 FY17 Q4 FY18 Jul-17 Jul-18 Jan-17 Jan-18 Apr-17 Oct-17 Apr-18 Oct-18
Slide 20: From paper to woodfibre
From paper to woodfibre Transition from global paper company to global woodfibre business 3 phases since 2010 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
Slide 21: Transformation – from paper to woodfibre
Transformation – from paper to woodfibre EBITDA* by Segment Segment analysis: EBITDA* 100% margin 90% 40 80% 34 35 30 29 70% 30 60% 25 50% 20 % 40% 15 13 10 9 30% 10 7 8 4 20% 5 10% 0 2010 2014 2018 0% 2010 2014 2018 Specialised cellulose Specialities and packaging papers Specialised cellulose Speci
Slide 22: Trends in our market
Trends in our market Specialities and Packaging Papers Economic Concerns Technology and Regulations Demographic Change Innovations o Cost reduction (TCO) o Traceable packaging o Food safety – Mineral oil o Easy opening o Light weighting and o Customized packaging barriers o More functionality and do
Slide 23: Sappi specialities and packaging papers
Sappi specialities and packaging papers Global production sites with the ability to switch between graphics and packaging at various sites* Stockstadt Mill* (Germany) Carmignano Mill (Italy) Flexible packaging Flexible packaging and functional papers and functional papers Condino Mill (Italy) Maastr
Slide 24: Verve - fibre for a thriving world
Verve - fibre for a thriving world Umbrella brand for Sappi’s dissolving wood pulp products Supports our long-standing reputation for: - Quality - Consistency - Reliability - Sustainability (people, planet, prosperity) - Collaboration with customers - Innovation Emphasising Sappi’s commitment to pro
Slide 25: Our group strategy
Our group strategy Achieve Maintain Improve operational cost Optimise a healthy and machine advantages working balance efficiencies capital sheet Expand paper Enhance packaging Strong specialised grades Maximise Continuously procurement cash Smart cellulose Optimise balance benefits paper supply gen
Slide 26: Our group strategy
Our group strategy We work to lower fixed and variable costs, increase cost efficiencies and invest for cost Achieve advantages. Improve operational cost Group efficiency and procurement initiatives and machine efficiencies advantages US$60m target for 2019. Ongoing continuous improvement acro
Slide 27: Our group strategy
Our group strategy Recognising the decreasing demand for Continuously balance paper supply graphic paper, we manage our capacity to and demand in all regions strengthen our leadership position in these Where markets, realising their strategic importance to possible convert paper Rationalise the gr
Slide 28: Our group strategy
Our group strategy Maintain leverage below 2x Net debt:EBITDA Finance costs US$60-70m/annum going Maintain forward. a healthy Optimise Renewal of RCF working balance capital sheet Lower spread (165bp), cost and commitment fee Additional flexibility for acquisitions and disposals Strong cas
Slide 29: Our group strategy
Our group strategy We will make investments in existing and Expand Enhance paper packaging adjacent areas with strong potential growth. specialised grades Debottlenecking of Saiccor, Cloquet and Ngodwana cellulose portfolio DWP. Investments in Speciality packaging incl. Rockwell and Accelerate
Slide 30: Outlook
Outlook 30
Slide 31: Outlook
Outlook DWP sales volumes to improve post debottlenecking – prices likely to be rangebound Demand growth for specialities and packaging papers and increased sales volumes as our conversion projects ramp-up production Conversions and capacity closures should keep graphic grades balanced, though
Slide 32: Thank you
Thank you 32
Slide 33: Supplementary information
Supplementary information 33
Slide 34: EBITDA and operating profit
EBITDA and operating profit Excluding special items* 250 EBITDA Operating profit ex special items 224 221 200 211 209 208 201 195 152 148 175 145 145 172 142 US$ million 136 150 133 160 155 155 112 105 97 93 100 85 50 0 * Refer to the supplementary information in this presentation for a reconciliati
Slide 35: Net debt/EBITDA development
Net debt/EBITDA development 4.6 2,600 5.0 4.5 2,400 2,380 2,286 4.0 2,200 2,248 3.5 2,000 2.1 2,040 3.0 US$ million 1,946 1,917 1,916 1,800 2.5 1,771 1,734 2.0 1,600 1,652 1632 1603 1583 1568 1.5 1,400 1408 1.0 1349 1338 1329 1322 1318 1,200 0.5 1,000 0.0 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4
Slide 36: Speciality and packaging papers expansion plans
Speciality and packaging papers expansion plans Expand Europe paper Maastricht: construction done, ramp-up by 2021 Enhance packaging specialised grades -160k CWF, +150k specialities (FBB) cellulose portfolio Ehingen: completed Q3 FY18, 1.5 year ramp-up -75k CWF, +60k specialities (WTL) Acc
Slide 37: DWP expansion plans
DWP expansion plans Expand Debottlenecking paper Enhance packaging Saiccor – 10kt complete April 2018 grades specialised Ngodwana – 50kt complete September 2018 cellulose portfolio Cloquet – 30kt complete Q3 2019 Accelerate additional 70kt swing capacity available Extract growth in value f
Slide 38: Coated paper deliveries and prices
Coated paper deliveries and prices Western Europe 1.2 1.1 1 0.9 0.8 0.7 0.6 0.5 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
Slide 39: Sappi Europe
Sappi Europe 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 38 35 137 127 special items** (EURm) * Sales less operating profit excluding special items div
Slide 40: Sappi North America
Sappi North America 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 31 27 49 47 special items** (USDm) * Sales less operating profit excluding spec
Slide 41: Sappi Southern Africa
Sappi Southern Africa Excluding Sappi Forests 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 1,081 1,106 3,524 4,510 special ite
Slide 42: Cash flow
Cash flow US$m Q4 FY18 Q4 FY17 FY 2018 FY 2017 Cash generated from operations 212 204 709 748 Movement in working capital 6 103 (79) (27) Net finance costs paid (24) (20) (66) (81) Taxation (paid) (23) (38) (73) (100) Dividend paid - - (81) (59) Cash generated from operating activities 171 249 410 4
Slide 43: EBITDA and operating profit
EBITDA and operating profit Excluding special items reconciliation to reported operating profit US$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 i
Slide 44: Coated paper prices and shipments
Coated paper prices and shipments United States of America 1.2 1.1 1 0.9 0.8 0.7 0.6 0.5 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, les
Slide 45: Pulp prices
Pulp prices* 1,300 1,200 1,100 US$/ton 1,000 900 800 700 600 NBSK Europe BHKP Europe Commodity DWP Cotton linter pulp * Source: FOEX, CCF group. 45
Slide 46: Textile fibre prices
Textile fibre prices* 2,800 2,400 US$/ton 2,000 1,600 1,200 800 Cotton 328 Cotton "A" Index PSF 1.4 D VSF 1.2 D VSF 1.5 D * Source: CCF group. 46
Slide 47: Cellulosic fibre properties helping drive that growth
Cellulosic fibre properties helping drive that growth Key strength Qualifies Issue Nonwovens/Technical textiles Home textiles Apparel Fibre properties and applications Cellulosic fibres Cotton Polyester 7 21 28 27 Applications 52 62 17 66 20 • On a pure property basis, Durability cellulosic f
Slide 48: Viscose-grade DWP demand growth
Viscose-grade DWP demand growth Dissolving wood pulp market Europe Americas China Other Products Applications Market size 2017 CAGR 2010-17% Demand DWP grade (examples) (examples) Mtpa geography • Textiles (viscose) Rayon • Non-wovens Viscose 6.1 7.5 Grade • Cellophane • Sausage skins • Cigarette fi
Slide 49: Headroom to increase cellulosic fibre blending
There is still significant headroom to increase the level of cellulosic fibre blending in most sub-categories POLYESTER COTTON CELLULOSIC Today Future Gap Today Future Gap Today Future Gap Apparel Denim 5% 5% 0 95% 95% 0% 0% 0% 0% Shirts 35% 40% +14% 50% 40% -20% 15% 20% +33% T-shirts 30% 50% +67% 7
Slide 50: Thank you
Thank you 50