Sappi Limited · JSE:SAP
Sappi — Q4 FY2017 Earnings Presentation
41 slides from Sappi's earnings presentation, Nov 16, 2017
Slide 1: Q4 FY17 financial results delivering on strategy
Q4 FY17 financial results delivering on strategy 16 November 2017 2017 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 FY17 EBITDA ex-special items: US$785m (FY16: US$739m) Profit for the period: US$338m (FY16: US$319m) EPS ex-special items: 64 US cents (FY16: 57 US cents) Net debt: US$1,322m, down US$86m year-on-year Dividend of 15 US cents declared (FY16: 11 US cents) Q4 FY17 EBITDA ex-speci
Slide 5: EBITDA and operating profit
EBITDA and operating profit Excluding special items* 250 Key ratios Q4 FY15 Q4 FY16 Q4 FY17 221 209 200 Net debt/LTM EBITDA 2.8 1.9 1.7 201 Interest cover 4.4 7.3 9.1 152 145 136 150 US$ million EBITDA % 14.3 15.6 15.7 ROCE % 18.7 20.9 20.2 100 50 0 Q4 FY15 Q4 FY16 Q4 FY17 EBITDA Operating profit *
Slide 6: EBITDA bridge
EBITDA bridge* Q4 FY16 to Q4 FY17 240 230 1 4 220 14 5 12 4 210 Sales revenue 200 US$ million 190 180 221 209 170 160 150 140 EBITDA Sales volume Price and mix Variable and Fixed costs Other Exchange rate EBITDA Q4 FY16 delivery costs Q4 FY17 All variances calculated excluding Sappi Forests. 'Exchan
Slide 7: Product contribution split - LTM
Product contribution split - LTM EBITDA excluding special items* Operating profit ex special items Specialised cellulose 64% Specialised Paper cellulose 51% 49% Paper 36% * Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and pag
Slide 8: Maturity profile
Maturity profile Fiscal years 600 550 540 500 EUR450m bond 422 EUR350m bond 400 364 US$ million 300 US$221m bond 221 200 100 69 84 28 37 24 33 33 37 0 2018 2019 2020 2021 2022 2023 2024 2032 Cash Short-term SPH term debt Securitisation SSA 8
Slide 9: Capex development
Capex development 600 500 400 US$ million 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 paper market trends
Global paper market trends Supply and demand Robust export markets for European producers – less competition from Asian producers Capacity closures in North America Speciality packaging paper demand continues to grow 1-5%. Selling prices and input costs Coated paper prices rising globall
Slide 12: Sappi Europe
Sappi Europe 180 Speciality packaging volumes 100 12% 160 EBITDA* EBITDA Margin* ‘000 tons 10% 140 80 8% 120 US$ million 60 6% 100 1H 16 2H 16 1H 17 2H 17 40 600 4% European CWF Exports 550 20 2016 2017 2% 500 ‘000 tons 450 0 0% Q4 FY14 Q4 FY15 Q4 FY16 Q4 FY17 400 350 Good local CWF demand, strong
Slide 13: Sappi North America
Sappi North America EBITDA* EBITDA Margin* 60 14% 920 No 3 Coated freesheet - 60 lb (90g) rolls US$/ton - US East** 12% 50 900 10% 40 880 US$ million 8% 30 860 6% 20 840 4% 10 820 2% 0 0% 800 Q4 FY14 Q4 FY15 Q4 FY16 Q4 FY17 Stronger performance relative to last year led by packaging and specialiti
Slide 14: Global DWP market trends
Global DWP market trends Supply and demand Continued strong demand from new viscose capacity. New market DWP capacity likely in 2019 – limited capacity addition 2017/2018. Selling prices and input costs DWP prices rose in September Polyester prices have risen recently, VSF pricing under
Slide 15: Sappi Southern Africa
Sappi Southern Africa 120 35% 1000 EBITDA* EBITDA Margin* Market price – Hardwood DWP (US$/ton)** 975 30% 100 950 25% 80 925 US$ million 20% 900 60 15% 875 40 850 10% 825 20 5% 800 0 0% 775 Q4 FY14 Q4 FY15 Q4 FY16 Q4 FY17 Better volumes and lower costs, stronger Rand offset these benefits which le
Slide 16: 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 17: 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 procurement initiatives >US$100m annually and machine efficiencies advantages by 2020 – target exceeded in 2017. Ongoing continuous im
Slide 18: 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 19: Our group strategy
Our group strategy US$400m 2017 bonds called in April 2017. US$21m in net finance cost savings/annum. Maintain Refinancing and debt reduction leads to lower Optimise a healthy finance cost - US$60-70m/annum going working balance capital sheet forward - and EPS growth. Strong cash Smart generat
Slide 20: Our group strategy
Our group strategy Expand We will make investments in existing and Enhance paper packaging adjacent areas with strong potential growth. specialised grades Debottlenecking of Saiccor and Ngodwana DWP. cellulose portfolio Investments in Speciality packaging incl. Rockwell Additional packaging
Slide 21: Outlook
Outlook 21
Slide 22: Outlook
Outlook DWP demand strong – pricing recovery underway. In Europe, utilisation rates remain good, higher sales prices lagging pulp cost increases for the moment Coated paper prices rising in North America – capacity closures improve operating rates. Maastricht and Somerset Mills conversions c
Slide 23: Thank you
Thank you 23
Slide 24: Supplementary information
Supplementary information 24
Slide 25: EBITDA and operating profit
EBITDA and operating profit Excluding special items* 250 EBITDA Operating profit ex special items 221 209 200 208 201 201 195 152 175 145 145 170 US$ million 136 136 133 160 150 155 145 112 104 97 93 109 100 74 43 50 0 * Refer to the supplementary information in this presentation for a reconciliatio
Slide 26: Net debt/EBITDA development
Net debt/EBITDA development 4.6 2 600 5.0 4.5 2 400 2 380 4.0 2 286 2 200 2 248 3.5 2 000 2 040 3.0 US$ million 1 946 1.68 1 917 1 916 1 800 2.5 1 771 1 734 2.0 1 600 1 652 1583 1.5 1 400 1408 1.0 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 FY15 Q4 FY15
Slide 27: 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 CWF Demand MCR Demand CWF 100gsm Sheets LWC 60gsm offset reels Western Europe shipments including export. Source: Cepifine, Cepiprint and RISI indexed to calend
Slide 28: Sappi Europe
Sappi Europe Q4 FY17 Q4 FY16 FY 2017 FY 2016 Tons sold (‘000) 842 822 3,343 3,252 Sales (EURm) 583 579 2,319 2,324 Price/Ton (EUR) 692 704 694 715 Cost/Ton* (EUR) 651 667 656 678 Operating profit excluding special items** 35 31 127 118 (EURm) * Sales less operating profit excluding special items div
Slide 29: Sappi packaging and speciality papers
Sappi packaging and speciality papers Global production sites Alfeld Mill (Germany) Maastricht Mill (The Netherlands) Flexible packaging, label, SBB board, topliner and release liner Folding boxboard – atelier™ Ehingen Mill (Germany) Cloquet Mill (USA) Topliner – Fusion® Label paper – LusterCote® So
Slide 30: 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 31: 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 Domestic CWF shipments Domestic CWF purchases RISI price CFS #3 60lb rolls US industry purchases defined as industry shipments, plus imports, less expo
Slide 32: Sappi North America
Sappi North America Q4 FY17 Q4 FY16 FY 2017 FY 2016 Tons sold (‘000) 361 363 1,359 1,329 Sales (US$m) 357 360 1,360 1,367 Price/Ton (US$) 989 992 1,001 1,029 Cost/Ton* (US$) 914 923 966 992 Operating profit excluding special items** 27 25 47 49 (US$m) * Sales less operating profit excluding special
Slide 33: 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 34: 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 35: 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 36: Pulp prices
Pulp prices* 1 100 1 000 900 US$/ton 800 700 600 NBSK Europe BHKP Europe Commodity DWP Cotton linter pulp * Source: FOEX, CCF group. 36
Slide 37: Textile fibre prices
Textile fibre prices* 2 800 2 400 US$/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. 37
Slide 38: Sappi Southern Africa
Sappi Southern Africa Excluding Sappi Forests Q4 FY17 Q4 FY16 FY 2017 FY 2016 Tons sold (‘000) 447 429 1,606 1,626 Sales (ZARm) 4,641 4,532 17,489 16,799 Price/Ton (ZAR) 10,383 10,564 10,890 10,332 Cost/Ton* (ZAR) 7,908 7,636 8,082 7,558 Operating profit excluding special items** 1,106 1,256 4,510 4
Slide 39: Cash flow
Cash flow US$m Q4 FY17 Q4 FY16 FY 2017 FY 2016 Cash generated from operations 204 191 748 693 Movement in working capital 103 70 (27) 4 Net finance costs paid (20) (4) (81) (91) Taxation paid (38) (2) (100) (56) Dividend paid - - (59) - Cash generated from operating activities 249 255 481 550 Cash u
Slide 40: EBITDA and operating profit reconciliation
EBITDA and operating profit Excluding special items reconciliation to reported operating profit US$m Q4 FY17 Q4 FY16 FY 2017 FY 2016 EBITDA excluding special items* 221 209 785 739 Depreciation and amortisation (69) (64) (259) (252) Operating profit excluding special items* 152 145 526 487 Special i
Slide 41: Thank you
Thank you 41