Sappi Limited · JSE:SAP
Sappi — Q3 FY2022 Earnings Presentation
49 slides from Sappi's earnings presentation, Aug 4, 2022
Slide 1: Q3 FY22 financial results
Steve Binnie Chief Executive Officer, Sappi Limited 04 August 2022 Q3 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 Q3 FY22
Highlights Q3 FY22 Excluding special items* • Strong global paper markets Record quarterly EBITDA* US$371m • Pricing momentum offset sharply rising costs • Graphic papers EBITDA* margin 22.1% Profit for the quarter US$199m • Packaging and speciality papers EBITDA* growth y-o-y** 57% EPS* 39 US cents
Slide 4: EBITDA contribution split
EBITDA* contribution split 400 350 300 250 200 US$ million 150 100 50 - Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 -50 FY18 FY19 FY20 FY21 FY22 -100 Pulp Packaging and speciality papers Graphic papers * Refer to the supplementary information in this presentation for a reconciliation of
Slide 5: EBITDA reconciliation Q3 FY21 to Q3 FY22
EBITDA* reconciliation Q3 FY21 to Q3 FY22 Pulp – (US$2m) Packaging and speciality papers – US$150m Graphic papers – US$422m Purchased pulp – (US$77m) 760 720 Energy, wood, chemicals – (US$190m) 680 Delivery cost – (US$30m) 640 600 560 520 480 US$ million 440 400 360 320 280 240 200 160 120 80 40 0 1
Slide 6: Cost inflation developments
Cost inflation developments Major variable input cost/ton impact on the Group since Q1 FY2020 2.5 • Energy +100% 2.0 - Largely due to the Russian-Ukrainian conflict 1.5 • Pulp +41% • Chemicals +30% 1.0 • Delivery +41% - Global logistical challenges and fuel 0.5 inflation continue to negatively impac
Slide 7: Product contribution split Last twelve months
Product contribution split Last twelve months EBITDA* excluding special items Sales volumes** 25% 20% 45% 55% 25% 30% * Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page 26 in our Q3 FY22 financial results booklet (availa
Slide 8: Net debt/EBITDA development
Net debt/EBITDA* development 2,600 7.0 2,400 6.0 2,200 1.4 5.0 2,000 2,070 2,056 2,055 US$ million 4.0 1,977 1,957 1,946 1,917 1,916 1,800 1,879 1.7 1,793 3.0 1,728 1,600 1,680 1,632 1,603 1,568 1,557 2.0 1,530 1,501 1,400 1,349 1,338 1,329 1,322 1,318 1,200 1.0 1,000 0.0 Q1 FY20*** Q2 FY20*** Q3 FY
Slide 9: Maturity profile
Maturity profile* Fiscal years 600 Includes 2026 2028 EUR450m bond EUR400m bond 500 495 443 400 US$ million 2032 US$221m bond 345 300 2025 ZAR1.3bn convertible bond** 200 221 100 74 66 91 88 25 25 18 19 61 44 0 2022 2023 2024 2025 2026 2027 2028 2032 Short-term SPH term debt Securitisation SSA * Exc
Slide 10: Capex
Capex FY2022 Capex in line with expectations 600 500 400 US$ million 300 200 100 0 2017 2018 2019 2020 2021 2022E* * Capital expenditure in FY22 is estimated to be US$395 million and includes approximately US$30 million of Saiccor Mill expansion capex, US$80 million for cost optimisation and quality
Slide 11: Global ocean freight developments
Global ocean freight developments Schedule reliability as of May 2022 WCI* decreased to $6,820 per 40ft 90% 80% 70% 60% 50% 40% 30% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2018 2019 2020 2021 2022 Source: Sea-Intelligence, GLP Issue 130. Source: Drewry 11 * WCI – World Container Index.
Slide 12: Paper pulp Prices
US$/ton 1,000 1,200 1,400 1,600 400 600 800 2-Jan-18 2-Feb-18 2-Mar-18 2-Apr-18 2-May-18 Source: FOEX, CCF group, RISI. 2-Jun-18 2-Jul-18 2-Aug-18 2-Sep-18 2-Oct-18 Paper pulp Prices 2-Nov-18 2-Dec-18 2-Jan-19 2-Feb-19 2-Mar-19 2-Apr-19 NBSK Europe (US$) NBSK Europe (EUR) 2-May-19 2-Jun-19 2-Jul-19
Slide 13: Energy price volatility challenge
Energy price volatility challenge Natural gas market: the only thing certain is uncertainty • Volatility in energy prices continues • Ongoing threat to gas and energy supplies poses a potential risk to our European business • To date, our energy risk mitigation strategies have successfully neutralis
Slide 14: Segmental overview
Segmental overview 14
Slide 15: Pulp Highlights Q3 FY22
Pulp Highlights Q3 FY22 Pulp 450 40% Sales tons -17% 400 350 35% 30% 25% year-on-year** Tons (‘000) 300 20% 250 15% 200 10% 150 5% 100 0% Price per ton 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 +1% year-on-year** Volume EBITDA m
Slide 16: Packaging and speciality papers Highlights Q3 FY22
Packaging and speciality papers Highlights Q3 FY22 Packaging and speciality papers 450 24% Sales tons flat 400 20% 350 16% Tons (‘000) year-on-year** 300 250 12% 8% 200 150 4% 100 0% Price per ton 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 Q
Slide 17: Graphic papers Highlights Q3 FY22
Graphic papers Highlights Q3 FY22 Graphic papers Sales tons +4% 1,100 23% 1,000 18% 900 13% year-on-year** Tons (‘000) 800 8% 700 3% 600 -2% 500 -7% 400 -12% Price per ton 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 +46% year-on-y
Slide 18: Sappi Europe Highlights Q3 FY22
Sappi Europe Highlights Q3 FY22 • Substantial improvement in profitability; EBITDA €200 million Sales tons +6% year-on-year** • Favourable market conditions facilitated selling price increases to offset higher costs Price per ton (EUR) • Renewed volatility in energy pricing +65% year-on-year** • Pac
Slide 19: Sappi North America Highlights Q3 FY22
Sappi North America Highlights Q3 FY22 • Another record quarterly EBITDA of US$118 million Sales tons +4% year-on-year** • Tight markets and higher selling prices contributed to this achievement Price per ton (US$) • US graphic paper markets continued to be tightly supplied +24% year-on-year** • Hig
Slide 20: Sappi Southern Africa Highlights Q3 FY22
Sappi Southern Africa Highlights Q3 FY22 • Challenging quarter Sales tons** -23% - Operations negatively impacted by the floods - Saiccor start-up after floods and maintenance shuts was year-on-year*** challenging Price per ton (ZAR)** • Pulp segment negatively impacted by reduced sales volumes, low
Slide 21: 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 22: 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. 22
Slide 23: 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 24: Outlook
Outlook 24
Slide 25: Outlook
Outlook • DP markets are expected to remain tight Pulp • Higher market pricing in the third quarter will support margins on contracted sales in the fourth quarter • Demand from our packaging and speciality papers Packaging and customers remains robust speciality papers • Despite early indicators of
Slide 26: Outlook Continued
Outlook Continued • Threat to gas and energy supplies in Europe poses a Energy supply potential risk to our European business • Notwithstanding inflationary cost pressures, we are Overall impact anticipating another strong performance in the fourth quarter, with EBITDA below the record levels achiev
Slide 27: Thank you
Thank you 27
Slide 28: Supplementary information
Supplementary information 28
Slide 29: EBITDA and operating profit
EBITDA and operating profit Excluding special items* 400 350 371 300 337 300 259 250 240 US$ million 200 224 161 211 148 142 197 187 185 128 177 150 172 117 109 105 145 155 139 92 131 85 100 118 112 64 62 98 52 48 82 50 31 16 26 0 -5 -50 -52 -100 Q1 FY18 Q2 FY18 Q3 FY18 Q4 FY18 Q1 FY19 Q2 FY19 Q3 FY
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 Digital imaging Casting and papers papers papers release papers Dye sublimation papers 31
Slide 32: Packaging and speciality papers Volume growth 2015 to 2022
Packaging and speciality papers Volume growth 2015 to 2022 1,800 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 2022F Flexpack Label Paperboard Self-adhesives Self Adhesives Digital Imaging Digital imaging Functional papers Casting Co
Slide 33: 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 34: Sappi Europe
Sappi Europe Q3 FY22 Q2 FY22 Q3 FY21 Tons sold (‘000) 780 801 733 - Packaging and speciality papers 163 167 141 - Graphic papers 617 634 592 Sales (EURm) 943 839 536 Price/Ton (EUR) 1,209 1,047 731 Cost/Ton* (EUR) 987 925 752 Operating profit excluding special items** (EURm) 173 98 (15) EBITDA exclu
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 Q3 FY22 Q2 FY22 Q3 FY21 Tons sold (‘000) 437 445 420 - Pulp 116 121 105 - Packaging and speciality papers 132 133 130 - Graphic papers 189 191 185 Sales (US$m) 566 536 438 Price/Ton (US$) 1,295 1,204 1,043 Cost/Ton* (US$) 1,073 1,007 969 Operating profit excluding special items**
Slide 37: Coated paper Deliveries and prices United States
Coated paper Deliveries and prices United States* 1.4 1.3 1.2 1.1 1.0 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 Q1 08 Q1 09 Q1 10 Q1 11 Q1 12 Q1 13 Q1 14 Q1 15 Q1 16 Q1 17 Q1 18 Q1 19 Q1 20 Q1 21 Q1 22 Domestic CWF shipments Domestic CWF purchases RISI price CFS #3 60 lb rolls * US industry purchases defined
Slide 38: Sappi South Africa
Sappi South Africa Q3 FY22 Q2 FY22 Q3 FY21 Tons sold* (‘000) 286 439 372 - Pulp 143 275 208 - Packaging and speciality papers 104 122 130 - Graphic papers 39 42 34 Sales* (ZARm) 3,858 5,879 4,434 Price/Ton* (ZAR) 13,490 13,392 11,919 Cost/Ton** (ZAR) 12,741 11,317 9,919 Operating profit excluding sp
Slide 39: Dissolving pulp Prices
US$/ton 1,000 1,050 1,100 1,150 1,200 1,250 1,300 1,350 600 650 700 750 800 850 900 950 Oct 2017 Source: CCF Group. Jan 2018 Apr 2018 Jul 2018 Oct 2018 Dissolving pulp Prices Jan 2019 Imp SW DP Apr 2019 Jul 2019 Oct 2019 Jan 2020 Imp HW DP Apr 2020 Jul 2020 Oct 2020 Jan 2021 Apr 2021 China origin DP
Slide 40: Textile fibre Prices
US$\ton 1,000 1,500 2,000 2,500 3,000 3,500 4,000 0 500 Jan 2018 Source: CCF Group. Apr 2018 Jul 2018 Oct 2018 Textile fibre Prices Jan 2019 Cotton 328 Apr 2019 Jul 2019 Oct 2019 Cotton "A" Index Jan 2020 Apr 2020 PSF 1.4 D Jul 2020 Oct 2020 Jan 2021 VSF 1.2 D Apr 2021 Jul 2021 VSF 1.5 D Oct 2021 Ja
Slide 41: Dissolving pulp Market indicators
Dissolving pulp Market indicators Retail textile and apparel sales by region/country Dissolving pulp pricing vs Viscose staple fibre (VSF) Indexed 2017=100 Source: US Census, National Bureau of Statistics, Eurostat. Indexing by Hawkins Wright. Source: CCF Group. Estimates for the US are based on dat
Slide 42: Cash flow
Cash flow US$m Q3 FY22 Q2 FY22 Q3 FY21 Cash generated from operations 351 328 126 Movement in working capital (71) (143) 37 Finance costs paid (14) (10) (31) Finance income received 2 2 2 Taxation (paid) refund (7) (4) (5) Cash generated from operating activities 261 173 129 Cash utilised in investi
Slide 43: EBITDA and operating profit reconciliation to reported operating profit
EBITDA and operating profit Excluding special items* reconciliation to reported operating profit US$m Q3 FY22 Q2 FY22 Q3 FY21 EBITDA excluding special items* 371 337 145 Depreciation and amortisation (71) (78) (81) Operating profit excluding special items* 300 259 64 Special items* – gains (losses)
Slide 44: 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 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) 0 Safety (LTIFR) (own employees) 80% Decl
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 Share of renewable baseline or higher and clean energy Baseline = 81.8% 5% Improvement in specific total energy (GJ/adt) 0
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 proportion of renewable and clean energy 9% Improvement in specific total energy (GJ/adt) 0 Safety (LTIFR) (own employ
Slide 48: 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 49: Thank you
Thank you 49