Sappi Limited · JSE:SAP
Sappi — Q2 FY2018 Earnings Presentation
46 slides from Sappi's earnings presentation, May 14, 2018
Slide 1: Q2 FY18 financial results delivering on strategy
Q2 FY18 financial results delivering on strategy 14 May 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
Highlights Q2 FY18 EBITDA ex-special items: US$211m (Q2 FY17: US$208m) Profit for the period: US$102m (Q2 FY17: US$88m) EPS ex-special items: 17 US cents (Q2 FY17: 17 US cents) Net debt: US$1,632m (Q2 FY17: US$1,329) Acquisition of Cham speciality paper business completed 4
Slide 5: EBITDA and operating profit
EBITDA and operating profit Excluding special items* 250 Key ratios Q2 FY16 Q2 FY17 Q2 FY18 211 200 Net debt/LTM EBITDA 208 2.4 1.7 2.2 195 Interest cover 6.5 7.7 11.0 145 142 150 133 US$ million EBITDA % 15.1 15.8 14.1 ROCE % 19.3 20.5 16.8 100 50 0 Q2 FY16 Q2 FY17 Q2 FY18 EBITDA Operating profit *
Slide 6: EBITDA bridge
EBITDA* bridge Q2 FY17 to Q2 FY18 Sales revenue 280 US$ million 240 200 160 208 10 55 (36) (11) (5) (10) 211 Q2 FY17 EBITDA Sales volume Price & mix Variable & delivery Fixed costs Other Exchange rate Q2 FY18 EBITDA costs Notes: Mar 1. All variances were calculated excluding Sappi Forestry. 2018 201
Slide 7: Product contribution split – LTM
Product contribution split – LTM EBITDA excluding special items Operating profit excluding special items Specialised 26% Cellulose 39% 45% Specialities & 58% Packaging Printing papers 16% 16% * Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported ope
Slide 8: Maturity profile
Maturity profile Fiscal years 700 600 576 EUR450m bond 500 459 453 EUR350m bond 398 US$ million 400 300 US$221m bond 221 200 78 97 91 100 28 42 31 49 48 0 2018 2019 2020 2021 2022 2023 2024 2032 Cash Short-term SPH term debt Securitisation SSA 8
Slide 9: Capex development
Capex development Saiccor expansion capex subject to EIA approval 700 600 500 US$ million 400 300 200 100 0 2013 2014 2015 2016 2017 2018E 2019E Maintenance Efficiency and expansion 9
Slide 10: Divisional overview
Divisional overview 10
Slide 11: Global P&W paper market trends
Global P&W paper market trends Supply and demand Operating rates remain healthy Capacity closures and conversions in North America and Europe Selling prices and input costs Paper prices rising globally, tracking pulp price increases Latex prices declining Lag effect between pulp and pa
Slide 12: Global speciality & packaging paper market trends
Global speciality & packaging paper market trends Supply and demand Environmental concerns spurring legislation incentivising the use of more paper-based packaging Demand forecast to grow 1-5%, more recently well above this More conversions expected into various grades of a highly fragmented
Slide 13: Global DWP market trends
Global DWP market trends Supply and demand Continued strong demand from new viscose capacity – depressing VSF prices New market DWP capacity likely in 2019 – limited capacity addition 2018. Paper pulp prices supporting DWP pricing Selling prices and input costs DWP market prices steady
Slide 14: Sappi Europe
Sappi Europe BHKP Europe (EUR) CWF-S 100g, Germany 900 80 12% EBITDA* EBITDA Margin* 850 10% 60 800 8% Eur million 750 40 6% 700 4% 20 650 2% 600 Apr-17 Oct-17 Apr-18 Jan-17 Jan-18 Jul-17 0 0% Q2 FY15 Q2 FY16 Q2 FY17 Q2 FY18 Strong performance due to traction on price increases for coated paper, a
Slide 15: Sappi North America
Sappi North America No 3 Coated freesheet - 60 lb (90g) rolls US$/ton - US East** 50 12% 960 EBITDA* EBITDA Margin* 940 10% 40 920 8% US$ million 900 30 6% 880 20 860 4% 840 10 2% 820 0 0% 800 Q2 FY15 Q2 FY16 Q2 FY17 Q2 FY18 Better results due to improved volumes in all product categories and high
Slide 16: Sappi Southern Africa
Sappi Southern Africa China market price – Hardwood DWP (US$/ton)** 1800 40% 1000.00 EBITDA* EBITDA Margin* 35% 975.00 1600 950.00 30% 1400 925.00 ZAR million 25% 1200 900.00 20% 1000 875.00 15% 850.00 800 10% 825.00 600 5% 800.00 400 0% 775.00 Q2 FY15 Q2 FY16 Q2 FY17 Q2 FY18 Despite higher volume
Slide 17: 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 18: 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 2018. Ongoing continuous improvement acro
Slide 19: 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 20: 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 21: Our group strategy
Our group strategy Expand We will make investments in existing and 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 Extract Accele
Slide 22: Cham speciality paper acquisition
Cham speciality paper acquisition Acquisition complete 28 February 2018 • Integration proceeding according to plan • Synergies of €10M expected within 2 years • Will add €30M of EBITDA at 15% margin post-synergies Carmignano mill Production: 100 000 tons p.a. Products: C1S flexpack, C1S label paper,
Slide 23: Our group strategy
Our group strategy Expand paper Ngodwana Energy Biomass Facility Enhance packaging specialised grades ZAR1.8bn 25MW boiler approved by DoE cellulose portfolio Construction begins Q3 FY18, expected completion Q4 FY20 Extract Accelerate Sappi share ZAR139m = 30% equity stake value from our gro
Slide 24: Speciality and packaging papers expansion plans
Speciality and packaging papers expansion plans Expand Europe paper Maastricht: construction done, 2 year ramp-up Enhance packaging specialised grades -160k CWF, +150k specialities (FBB) cellulose portfolio Ehingen: to be completed Q3 FY18, 1.5 year ramp-up -75k CWF, +60k specialities (WTL
Slide 25: DWP expansion plans
DWP expansion plans Expand Debottlenecking paper Enhance packaging Saiccor – 10kt complete April 2018 specialised grades cellulose Ngodwana – 50kt complete September 2018 portfolio Cloquet – 30kt complete Q3 2019 additional 70kt swing capacity available Extract Accelerate value from our gr
Slide 26: Outlook
Outlook 26
Slide 27: Outlook
Outlook DWP demand good – prices stable, lower volumes expected due to Q3 maintenance shuts EU operating rates strong, paper prices rising. Somerset conversion will be completed in Q3. US paper price increases negating higher pulp and chemical costs Speciality and packaging paper demand cont
Slide 28: Thank you
Thank you 28
Slide 29: Supplementary information
Supplementary information 29
Slide 30: EBITDA and operating profit
EBITDA and operating profit Excluding special items* 250 EBITDA Operating profit ex special items 221 211 209 200 208 201 195 152 175 145 145 172 142 US$ million 136 133 160 150 155 112 105 97 93 100 50 0 * Refer to the supplementary information in this presentation for a reconciliation of EBITDA to
Slide 31: Net debt/EBITDA development
Net debt/EBITDA development 4.6 2 600 5.0 4.5 2 400 2 380 4.0 2 200 2 286 2 248 3.5 2 000 2.2 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 1583 1.5 1 400 1408 1.0 1349 1338 1329 1322 1318 1 200 0.5 1 000 0.0 Q1 FY14 Q2 FY14 Q3 FY14 Q4 FY14 Q1 FY15 Q2 FY15 Q3 FY1
Slide 32: 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 33: Sappi Europe
Sappi Europe Q2 FY18 Q2 FY17 1H FY18 1H FY17 Tons sold (‘000) 847 839 1,669 1,706 Sales (EURm) 616 581 1,187 1,183 Price/Ton (EUR) 727 692 711 693 Cost/Ton* (EUR) 684 658 670 653 Operating profit excluding 37 29 68 69 special items** (EURm) * Sales less operating profit excluding special items divid
Slide 34: Sappi specialities and packaging papers
Sappi specialities and packaging papers Global production sites Alfeld Mill (Germany) Carmignano Mill (Italy) Flexible packaging, label, C1S flexible packaging SBB board, topliner and release liner and self-adhesives Condino Mill (Italy) Cloquet Mill (USA) Glassines, Label paper – LusterCote® uncoat
Slide 35: Markets and growth rates
Markets and growth rates Global market size – Speciality packaging Flexible packaging Release liner Rigid packaging Containerboard Functional papers and label papers o C1S papers o CCK graphic arts o SBS printing and o Coated white o Barrier and grease o 1.2 million tons o 300,000 tons converting To
Slide 36: 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 37: Sappi North America
Sappi North America Q2 FY18 Q2 FY17 1H FY18 1H FY17 Tons sold (‘000) 347 329 690 682 Sales (USDm) 363 335 705 689 Price/Ton (USD) 1,046 1,018 1,022 1,010 Cost/Ton* (USD) 994 976 997 978 Operating profit excluding 18 14 17 22 special items** (USDm) * Sales less operating profit excluding special item
Slide 38: Viscose-grade DWP is used almost exclusively in textile applications
Viscose-grade DWP is used almost exclusively in textile applications Dissolving wood pulp market Europe Americas China Other Products Applications Market size 2016 CAGR 2010-16 Demand DWP grade (examples) (examples) Mtpa % geography • Textiles (viscose) Rayon • Non-wovens Viscose 5.3 7.8 Grade • Cel
Slide 39: Cellulosic fibre properties are superior to cotton and polyester
Cellulosic fibre properties are superior to cotton and polyester for many Key strength Qualifies Issue textile applications 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 prope
Slide 40: Significant 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 41: Pulp prices US$/ton
Pulp prices* 1 200 1 100 1 000 US$/ton 900 800 700 600 NBSK Europe BHKP Europe Commodity DWP Cotton linter pulp * Source: FOEX, CCF group. 41
Slide 42: Textile fibre prices US$/ton
Textile fibre prices* 2 800 2 400 US$/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. 42
Slide 43: Sappi Southern Africa
Sappi Southern Africa Excluding Sappi Forests Q2 FY18 Q2 FY17 1H FY18 1H FY17 Tons sold (‘000) 413 408 796 772 Sales (ZARm) 4,331 4,619 8,404 8,641 Price/Ton (ZAR) 10,487 11,321 10,558 11,193 Cost/Ton* (ZAR) 8,186 8,093 8,183 7,972 Operating profit excluding 950 1,317 1,890 2,486 special items** (ZA
Slide 44: Cash flow
Cash flow US$m Q2 FY18 Q2 FY17 1H FY18 1H FY17 Cash generated from operations 194 203 356 405 Movement in working capital (35) (26) (118) (123) Net finance costs paid (15) (24) (21) (41) Taxation refund (paid) (50) (32) (44) (66) Dividend paid (81) (59) (81) (59) Cash generated from operating activi
Slide 45: EBITDA and operating profit reconciliation
EBITDA and operating profit Excluding special items reconciliation to reported operating profit US$m Q2 FY18 Q2 FY17 1H FY18 1H FY17 EBITDA excluding special items* 211 208 383 409 Depreciation and amortisation (69) (63) (136) (128) Operating profit excluding special items* 142 145 247 281 Special i
Slide 46: Thank you
Thank you 46