Sappi Limited · JSE:SAP
Sappi — Q3 FY21 Earnings Presentation
50 slides from Sappi's earnings presentation, Aug 5, 2021
Slide 1: Q3 FY21 financial results
Steve Binnie Chief Executive Officer of Sappi Limited 05 August 2021 Q3 FY21 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 FY21
Highlights Q3 FY21 Excluding special items* • Excellent performance in packaging and speciality papers; Record EBITDA volumes up 23% y-o-y and record EBITDA in the quarter for packaging and • Higher DP selling prices facilitated 70% improvement in speciality papers DP EBITDA q-o-q • Demand for graph
Slide 4: EBITDA reconciliation Q3 FY20 to Q3 FY21
EBITDA* reconciliation Q3 FY20 to Q3 FY21 Dissolving pulp – US$90m Purchased pulp – (US$76m) Packaging and speciality papers – US$14m Delivery cost – (US$15m) 280 Graphic papers – US$8m Energy, wood, chemicals – US$41m 240 200 Dissolving pulp – US$5m Packaging and speciality papers – US$27m Graphic
Slide 5: Product contribution split Last twelve months
Product contribution split Last twelve months EBITDA* excluding special items Sales volumes** 22% 23% 31% Dissolving pulp 52% Packaging and speciality papers Graphic papers 25% 47% * Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating prof
Slide 6: Segment volume & EBITDA margin
Segment volume & EBITDA* margin Graphic papers Packaging and speciality papers 1,100 450 20% 1,000 8% 400 16% 900 350 Tons (‘000) Tons (‘000) 3% 12% 800 300 700 -2% 250 8% 600 200 -7% 4% 500 150 400 -12% 100 0% Q1 18 Q2 18 Q3 18 Q4 18 Q1 19 Q2 19 Q3 19 Q4 19 Q1 20 Q2 20 Q3 20 Q4 20 Q1 21 Q2 21 Q3 21
Slide 7: Net debt/EBITDA development
Net debt/EBITDA* development 4.7 2,600 7.0 2,400 6.0 2,200 5.0 2,000 2,070 US$ million 2,056 2,055 4.0 1,977 1,957 1,916 1,800 1,879 3.0 1,728 1,600 1.7 1,680 1,632 1,603 1,568 1,557 2.0 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 FY20*** Q4 FY20*** Q1 FY21
Slide 8: Maturity profile
Maturity profile* Fiscal years 600 Includes 2026 EUR450m bond 565 500 505 2028 EUR400m bond 400 US$ million 2032 US$221m bond 300 298 2025 ZAR1.8bn convertible bond** 200 221 100 127 106 99 28 28 28 24 76 21 71 69 60 49 0 2021 2022 2023 2024 2025 2026 2027 2028 2032 Short-term SPH term debt Securiti
Slide 9: Capex
Capex 600 500 400 US$ million 300 200 100 0 2017 2018 2019 2020 2021E* * Capital expenditure in FY21 is estimated to be US$400 million. 9
Slide 10: Segmental overview
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Slide 11: Sappi Europe
Sappi Europe • Sales volumes +10% q-o-q due to resumption of Sales tons +36% economic activity year-on-year • Ongoing limitations on container availability and vessel space constrained export sales • 85,000 tons commercial downtime in graphic papers Price per ton (EUR) • CWF and CM volumes 94% and 7
Slide 12: Sappi North America
Sappi North America • Excellent performance from all three product segments Sales tons +37% • Customer demand for Sappi graphic paper grades year-on-year exceeded capacity in the quarter • Packaging and speciality papers volumes +38% y-o-y and +7% q-o-q; optimisation of product mix to higher-margin
Slide 13: Sappi Southern Africa
Sappi Southern Africa • EBITDA +46% q-o-q; higher DP selling prices Sales tons** +20% • DP sales volumes negatively impacted by 40,000 tons from year-on-year lost Saiccor Mill production due to the extended shut • Logistics issues remain a challenge with volumes spilling over from one quarter to the
Slide 14: Markets: Dissolving pulp
Markets Dissolving pulp • Average CCF market price was US$1,088 per ton; +19% q-o-q • Higher DP prices in the quarter will be realised in the fourth quarter due to the lag in contractual pricing • Higher stock levels of VSF, yarn and grey fabric through the supply chain due to seasonally low demand,
Slide 15: Markets: Packaging and speciality papers
Markets Packaging and speciality papers • EBITDA in the segment reached record high in the quarter • Good progress in North America in optimising product mix at the Somerset Mill to higher-margin grades and strong containerboard performance in South Africa • Many categories positively affected to da
Slide 16: Markets: Graphic papers
Markets Graphic papers • Graphic papers market continued its recovery path to pre- pandemic levels; relative to Q3 FY19 European CWF and CM markets were approximately 80% and US CWF market was approximately 88% • Substantial capacity exited the sector tightening market balance; 2020/2021 capacity re
Slide 17: Cash management
Cash management Financing • Subsequent to quarter-end conversion notices received for the convertible bond of just over 26% of the initial offering of ZAR1,800 million • Reinstatement of leverage covenants provides a comfortable level of headroom when covenant measurement commences again from Decemb
Slide 18: Road to recovery
Road to recovery 18
Slide 19: Road to recovery: Dissolving pulp
Road to recovery Dissolving pulp Retail textile and apparel sales by region/country Viscose staple fibre (VSF) vs Dissolving pulp pricing 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 data
Slide 20: Road to recovery continued: Coated woodfree paper
Road to recovery continued Coated woodfree paper United States CFS consumption (y-o-y)* Europe CWF change in volumes (y-o-y)** May-21 May-20 Mar-21 Mar-20 Nov-20 Aug-20 Dec-20 Sep-20 Feb-21 Feb-20 May-21 May-20 Apr-21 Apr-20 Oct-20 Jun-21 Jun-20 Mar-21 Jan-21 Jan-20 Nov-20 Aug-20 Dec-20 Feb-21 Sep-2
Slide 21: Global ocean developments
Global ocean developments Global schedule reliability 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2018 2019 2020 2021 Source: Sea-Intelligence, GLP issue 118. 21
Slide 22: Our business strategy Thrive25
Our business strategy Thrive25 Drive sales growth Committing to core business segments while investing in innovation, growth opportunities and ongoing customer relationships • Continued ramp up at Maastricht Mill Grow • Explore other opportunities to reallocate graphic papers capacity to packaging a
Slide 23: Our business strategy Thrive25: Two phases of strategic development
Our business strategy Thrive25 Two phases Phase 1 Strengthen balance sheet (2021 – 2022) Phase 2 Invest for profit growth (2022+) of strategic Objective Strategy Objective Strategy development— deleveraging Reduce debt and • Complete approved projects Invest in new opportunities. • Deliver smaller g
Slide 24: Partnering for change
Sustainability is at the core of our business Partnering for change By reaching out to others and working together to solve challenges, we can achieve much more than we can alone. PARTNERSHIPS FOR THE GOALS 24
Slide 25: KPI – build and activate mutually beneficial partnerships
KPI – build and activate mutually beneficial partnerships • Partnered with SANBI to officially proclaim the Roelton Blue Swallow site (120 ha) within the Sappi Sutton Plantation as a nature reserve in April 2021. • The reserve protects the breeding sites for critically endangered Blue Swallows (Hiru
Slide 26: 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 2025 sustainability targets aligned with the Sappi’s commitment to sustainable growth United Nations Sustainable Development Goals • Sappi Forests: 100% FSC certified •
Slide 27: Outlook
Outlook 27
Slide 28: Outlook
Outlook • Positive outlook despite a gradual weakening of market pricing in the third quarter Dissolving pulp • Benefit of the elevated third quarter pricing will be realised in the fourth quarter due to the lag in contractual pricing • Underlying demand in North America and South Africa Packaging a
Slide 29: Outlook continued
Outlook Continued • In July, civil unrest in South Africa caused major disruptions resulting in temporary closure of Saiccor, Tugela and Civil unrest Stanger Mills; lost production 28,000 tons DP and 7,000 tons paper with estimated negative EBITDA impact of US$16 million • Global logistical challeng
Slide 30: Thank you
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Slide 31: Supplementary information
Supplementary information 31
Slide 32: EBITDA and operating profit
EBITDA and operating profit Excluding special items* 250 224 221 200 211 208 201 197 152 148 187 185 145 142 136 172 150 128 155 155 117 109 145 105 139 US$ million 131 93 118 100 85 112 98 64 62 52 82 48 50 31 16 26 0 -5 -50 -52 -100 Q1 FY17 Q2 FY17 Q3 FY17 Q4 FY17 Q1 FY18 Q2 FY18 Q3 FY18 Q4 FY18 Q
Slide 33: 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 34: Packaging and speciality papers Sappi Europe
Packaging and speciality papers Sappi Europe Flexible packaging Functional papers Label papers Containerboard Paperboard Silicone base Dye sublimation Digital imaging papers papers papers papers 34
Slide 35: Packaging and speciality papers Sappi North America
Packaging and speciality papers Sappi North America Casting and Functional papers Label papers Paperboard Paperboard Paperboard Paperboard release papers Bristols Folding carton Litho lamination Food service board 35
Slide 36: Packaging and speciality papers Sappi Southern Africa
Packaging and speciality papers Sappi Southern Africa Paperboard Containerboard Containerboard Containerboard Topliner Tobacco liner Fluting 36
Slide 37: Packaging and speciality papers volume growth 2017 to 2021
Packaging and speciality papers Volume growth 2017 to 2021 1,600 1,400 1,209 1,200 1,129 1,009 1,000 854 800 600 400 200 - 2017 2018 2019 2020 2021F Flexpack Label Paperboard Self-adhesives Self Adhesives Digital Imaging Digital imaging Functional papers Casting Containerboard Tissue Other 37
Slide 38: Paperboard segments North America
Paperboard segments North America Quality Premium Premium Spectro (commercial print, (92 brightness) premium folding carton) 300,000 tons (10%) Performance (88 brightness) 2 million tons Performance (45%) Proto and Proto Litho Food service (folding carton and litho & cup stock lamination application
Slide 39: Sappi Europe
Sappi Europe Q3 FY21 Q2 FY21 Q3 FY20 Tons sold (‘000) 733 669 540 Sales (EURm) 536 483 420 Price/Ton (EUR) 731 722 778 Cost/Ton* (EUR) 752 734 837 Operating profit excluding special items** (EURm) (15) (8) (32) * Sales less operating profit excluding special items divided by tons sold. ** Refer to t
Slide 40: Coated paper deliveries and prices Western Europe
Coated paper Deliveries and prices Western Europe* 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 CWF demand MCR demand CWF 100 gsm sheets LWC 60 gsm offset reels * Western Europe shipments including export. Source: Cepif
Slide 41: Sappi North America
Sappi North America Q3 FY21 Q2 FY21 Q3 FY20 Tons sold (‘000) 420 426 307 Sales (US$m) 438 408 267 Price/Ton (US$) 1,043 958 870 Cost/Ton* (US$) 969 932 974 Operating profit excluding special items** (US$m) 31 11 (32) * Sales less operating profit excluding special items divided by tons sold. ** Refe
Slide 42: Coated paper deliveries and prices United States
Coated paper Deliveries and prices United States* 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 Domestic CWF shipments Domestic CWF purchases RISI price CFS #3 60 lb rolls * US industry purchases defined as industry ship
Slide 43: Sappi Southern Africa
Sappi Southern Africa Q3 FY21 Q2 FY21 Q3 FY20 Tons sold* (‘000) 372 414 310 Sales* (ZARm) 4,434 4,458 3,486 Price/Ton* (ZAR) 11,919 10,768 11,245 Cost/Ton** (ZAR) 9,919 9,710 10,387 Operating profit excluding special items*** (ZARm) 744 438 266 * Tons sold, sales and price per ton excludes forestry
Slide 44: Paper pulp prices
Paper pulp Prices 1,400 1,100 1,300 1,000 1,200 1,100 900 1,000 800 US$/ton 900 700 800 700 600 600 500 500 400 400 2-Mar 2-Apr 2-May 2-Aug 2-Sep 2-Mar 2-Apr 2-May 2-Aug 2-Sep 2-Mar 2-Apr 2-May 2-Aug 2-Sep 2-Mar 2-Apr 2-May 2-Feb 2-Feb 2-Feb 2-Feb 2-Oct 2-Oct 2-Oct 2-Jan 2-Jun 2-Jul 2-Nov 2-Dec 2-Ja
Slide 45: Dissolving pulp prices
Dissolving pulp Prices 1,250 1,200 1,150 1,100 1,050 1,000 US$/ton 950 900 850 800 750 700 650 600 Oct 2017 Apr 2018 Oct 2018 Apr 2019 Oct 2019 Apr 2020 Oct 2020 Apr 2021 Jan 2018 Jan 2019 Jan 2020 Jan 2021 Jul 2018 Jul 2019 Jul 2020 Imp SW DP Imp HW DP China origin DP Source: CCF Group. 45
Slide 46: Textile fibre prices
US$\ton 1,000 1,500 2,000 2,500 3,000 0 500 Jan 2018 Source: CCF Group. Apr 2018 Jul 2018 Textile fibre Prices Oct 2018 Cotton 328 Jan 2019 Apr 2019 Cotton "A" Index Jul 2019 Oct 2019 PSF 1.4 D Jan 2020 Apr 2020 VSF 1.2 D Jul 2020 Oct 2020 VSF 1.5 D Jan 2021 Apr 2021 Jul 2021 46
Slide 47: Cash flow
Cash flow US$m Q3 FY21 Q2 FY21 Q3 FY20 Cash generated from operations 126 107 25 Movement in working capital 37 (72) 20 Finance costs paid (31) (21) (48) Finance income received 2 2 1 Taxation (paid) refund (5) (3) 13 Cash generated from operating activities 129 13 11 Cash utilised in investing acti
Slide 48: EBITDA and operating profit reconciliation to reported operating profit
EBITDA and operating profit Excluding special items* reconciliation to reported operating profit US$m Q3 FY21 Q2 FY21 Q3 FY20 EBITDA excluding special items* 145 112 26 Depreciation and amortisation (81) (81) (78) Operating profit excluding special items* 64 31 (52) Special items* – gains (losses) (
Slide 49: 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 Product packaging Technical papers Chemicals from lignin Binding agent Dispersion agent Dissolving pulp Emulsion stabiliser Textiles Pharmaceuticals Cellophane Fibre composi
Slide 50: Thank you
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