Sappi Limited · JSE:SAP
Sappi — Q4 FY2020 Earnings Presentation
46 slides from Sappi's earnings presentation, Nov 5, 2020
Slide 1: Q4 FY20 financial results
Steve Binnie Chief Executive Officer, Sappi Limited 05 November 2020 Q4 FY20 financial results
Slide 2: Forward-looking statements and Regulation G disclosure
Forward-looking statements and Regulation G disclosure 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 indica
Slide 3: Highlights—FY2020
Highlights— FY2020 Excluding special items* • Severe impact from Covid-19 on profitability Growth in Packaging and • Significant declines in demand and lower sales Speciality segment prices for graphic paper and dissolving pulp • Packaging and speciality papers segment continued EBITDA* US$378m to g
Slide 4: Highlights—Q4 FY20
Highlights—Q4 FY20 Excluding special items* • Packaging and specialities volumes and profitability Graphic paper and increased compared to the prior year DP recovery underway • Graphic paper sales volumes – 32% : Each month of quarter progressively better EBITDA* US$82m • DP sales volumes -29% : Ind
Slide 5: EBITDA reconciliation
EBITDA* reconciliation Q4 FY20 to Q FY419 170 130 90 US$ million 50 10 (30) 185 (97) (111) 50 35 8 12 82 Q4 FY19 EBITDA Sales volume Price & mix Variable & delivery Fixed costs Other Exchange rate Q4 FY20 EBITDA costs 1. All variances were calculated excluding Sappi Forestry. 2. ‘Currency conversion
Slide 6: Product contribution split—LTM EBITDA excluding special items
Product contribution split—LTM EBITDA excluding special items Sales volumes 17% 23% Dissolving pulp 35% 35% 38% Packaging and specialities 55% Graphics 22% 48% 27% • Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page 29 in
Slide 7: Segment volume & EBITDA margin
Segment volume & EBITDA* margin 1,100 400 20.0% 1,000 8.0% 350 900 15.0% 3.0% 300 800 250 10.0% 700 -2.0% 600 200 -7.0% 5.0% 500 150 400 -12.0% 100 0.0% Graphics volume Graphics margin Packaging and specialities volume Packaging and specialities margin 400 40% 350 30% 300 250 20% 200 10% 150 100 0%
Slide 8: Net debt/EBITDA development
Net debt/EBITDA* development 2,600 5.2 6.0 2,400 5.0 2,200 4.0 2,000 2.6 1,977 1,957 1,916 1,800 3.0 1,879 US$ million 1,734 1,728 1,600 1,680 1,652 2.0 1,632 1,603 1,583 1,568 1,557 1,400 1,501 1,408 1.0 1,349 1,338 1,329 1,322 1,318 1,200 1,000 0.0 * EBITDA is excluding special items. Net debt Net
Slide 9: Maturity profile
Maturity profile* Fiscal years 600 550 Includes 2026 EUR450m bond 500 475 Includes 2023 EUR350m bond 400 US$ million 300 279 Includes 2032 256 US$221m bond 221 200 116 96 88 100 68 63 45 41 47 52 26 0 0 2021 2022 2023 2024 2025 2026 2027 2028 2032 Cash Short-term SPH term debt Securitisation SSA RCF
Slide 10: Capex
Capex 600 500 400 US$ million 300 200 100 0 2017 2018 2019 2020 2021E Maintenance Efficiency and expansion 10
Slide 11: Segmental Overview
Segmental Overview 11
Slide 12: Sappi Europe
Sappi Europe • Industry CWF and CM shipments 30% and 28% Sales tons -29% lower for the quarter – progressive improvement year-on-year each month • 285kt production curtailment on graphic paper machines, approximately US$78m EBITDA impact Variable costs -8% year-on-year • Paperboard sales held up - 4
Slide 13: Sappi North America
Sappi North America • Excellent sales growth in the packaging and Sales tons 7%* specialities segment year-on-year • Graphic paper sales volumes declined 25% but steady improvement in demand through the quarter Packaging and • Commercial downtime of 36kt in quarter - US$9m specialities vol +88% EBIT
Slide 14: Sappi South Africa
Sappi South Africa • Significantly impacted by lower DP volumes and Sales tons -18% prices and weak domestic paper markets year-on-year • DP sales volumes 29% below the prior year – 55kt curtailment with US$12m EBITDA impact Variable costs -3% • Packaging volumes and prices flat year-on-year year-on
Slide 15: Cash management
Cash management • Financing activities – Negotiated covenant waiver suspension period until September 2021 – first measurement Dec 2021 • US$135m reduction in working capital in the quarter • Capital expenditure commitments – Saiccor Mill expansion project —completion now expected in Q3 FY2021 • Pro
Slide 16: Markets
Markets • Graphic papers – Demand experienced a slow recovery through to September with volumes 32% lower than last year – Quarterly demand declines of approximately -31% in Europe for CWF and CM, and -27% in US for CWF. – Newsprint and Office paper continue to be impacted by Covid-19 in SA – Prices
Slide 17: Markets cont.
Markets cont. • Dissolving pulp – Industry demand for DP recovered faster than expected – Global clothing retail sales rebounded and supply chain inventory levels refilled – Market conditions for DP have improved, with strong demand and pricing that has recovered during October; Chinese market price
Slide 18: Road to recovery
Road to recovery Source: US Federal Reserve 18 Source: Sappi estimate, PPPC, AF&PA and Eurograph
Slide 19: Our business strategy
Our business strategy How we’ll get there Through collaboration and innovation we will grow profitably, using our strength as a sustainable and diversified global woodfibre group, focused on dissolving pulp, graphic, packaging and speciality papers, and biomaterials. 19
Slide 20: Sappi's 2025 strategy
Sappi’s 2025 strategy Four key fundamentals Two phases 20
Slide 21: Our Strategy: Four key fundamentals
Our Strategy Four key fundamentals Grow our Sustain Drive operational Enhance Trust business financial excellence Committing to core healthand Reducing Strengthening our Improving our business segments managing our debt, safety-first culture understanding of – and while investing in growing EBITDA,
Slide 22: Phase 1: Strengthen balance sheet (2021–2023)
Phase 1 Strengthen balance sheet (2021–2023) Objective Strategy Reduce debt and • Complete approved projects on maximise cash time and within budget • Drive further margin generation improvement opportunities • Investigate new growth opportunities for next phase 22
Slide 23: Phase 2: Invest for profit growth (2023+)
Phase 2 Invest for profit growth (2023+) Objective Strategy • Deliver smaller growth Invest in new opportunities opportunities • Make decision on expansions and conversions • Commercialise new products at scale • Execute sustainability strategy • Invest in R&D 23
Slide 24: Group strategy update
Group strategy Update • Drive operational excellence – Group efficiency and procurement saving initiatives in FY20: US$108m – Saiccor Mill expansion completion in Q3 FY21—will improve efficiency and lower costs once complete • Enhance trust – Commitment to set Science Based Targets – Following TCFD
Slide 25: Outlook
Outlook • Underlying performance of the business expected to improve in the first quarter. • Demand for most packaging and speciality products remains robust – shuts at Somerset and Ngodwana will impact volumes and profitability in segment • DP market conditions and pricing have improved; FQ1 volume
Slide 26: Thank you
sappi Thank you
Slide 27: Supplementary information
Supplementary information 27
Slide 28: EBITDA and operating profit
EBITDA and operating profit Excluding special items* 250 200 224 221 211 208 152 201 148 197 145 142 136 187 185 128 150 172 117 109 105 155 155 139 93 131 100 85 118 62 US$ million 52 48 82 50 26 0 -5 -50 -52 -100 EBITDA * Refer to the supplementary information in this presentation for a reconcilia
Slide 29: Net debt and liquidity development
Net debt and liquidity development Sep-18 US$'000 Sep-19 US$'000 Mar-20 US$'000 Sep-20 US$'000 Long-Term Debt 1,471 Long-Term Debt 1,465 Long-Term Debt 1,616 Long-Term Debt 1,649 Securisation 376 Securisation 366 Securisation 347 Securisation 256 Short-Term Debt 84 Short-Term Debt 64 Short-Term Debt
Slide 30: Global packaging and speciality papers production sites
Global packaging and speciality papers production sites Alfeld Mill (Germany) Stockstadt Mill (Germany) Condino Mill (Italy) Somerset Mill (USA) Tugela Mill (South Africa) Flexible packaging, label paper, Label paper, flexible packaging, Flexible packaging, silicone base paper, Label paper, paperboa
Slide 31: Packaging and speciality papers: Sappi Europe
Packaging and speciality papers Sappi Europe 31
Slide 32: Packaging and speciality papers: Sappi North America
Packaging and speciality papers Sappi North America Paperboard C1S Paper (SBS) Food service Label paper Bag paper Bristols Folding carton Litho lamination board Spectro Proto C1S LusterFSB LusterCote LusterPrint Proto Litho (C1S & C2S) Spectro C1S LusterPlate 32
Slide 33: Packaging and speciality papers volume growth 2017 to 2021
Packaging and speciality papers volume growth 2017 to 2021 1,600 1,444 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 Digital Imaging Functional papers Casting Containerboard Tissue Other 33
Slide 34: Sustainability focus
Sustainability focus EU consumer and brand owner • Desired outcome - Prevent or reduce the impact of packaging waste on the environment by avoiding and recycling packaging waste; preference for Monomaterials • Consequences - Product design requires a ‘designed for recycling’ approach - Recycling sys
Slide 35: Paperboard segments North America
Paperboard segments North America Quality Premium Premium Spectro (commercial print, (92 brightness) premium folding carton) 400k tons (10%) Performance (88 Brightness) Performance 2.0m tons (45%) Proto and Proto Litho (folding carton and litho Food service lamination applications) & cup stock (88 b
Slide 36: Sappi Europe
Sappi Europe Q4 FY20 Q3 FY20 Q4 FY19 Tons sold (‘000) 570 540 801 Sales (EURm) 422 420 633 Price/Ton (EUR) 740 778 790 Cost/Ton* (EUR) 774 837 764 Operating profit excluding special items** (EURm) (19) (32) 21 * Sales less operating profit excluding special items divided by tons sold. ** Refer to th
Slide 37: 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 CWF demand MCR demand CWF 100 gsm sheets LWC 60 gsm offset reels Western Europe shipments including export. Source: Cepifine, Cepiprint and RISI indexed to calendar 1Q 2008. 37
Slide 38: Sappi North America
Sappi North America Q4 FY20 Q3 FY20 Q4 FY19 Tons sold (‘000) 416 307 388 Sales (USDm) 361 267 394 Price/Ton (USD) 868 870 1,015 Cost/Ton* (USD) 868 974 972 Operating profit excluding special items** (USDm) - (32) 17 * Sales less operating profit excluding special items divided by tons sold. ** Refer
Slide 39: Coated paper deliveries and prices: United States
Coated paper deliveries and prices United States of America 1.2 1.1 1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 Domestic CWF shipments Domestic CWF purchases US industry purchases defined as industry shipments, plus imports, less exports. Source: AF&PA and RISI indexed to calendar Q1 FY08. 39
Slide 40: Sappi South Africa
Sappi South Africa Q4 FY20 Q3 FY20 Q4 FY19 Tons sold (‘000) 369 310 450 Sales (ZARm) 3,914 3,506 5,144 Price/Ton (ZAR) 10,608 11,310 11,431 Cost/Ton* (ZAR) 9,779 10,452 9,213 Operating profit excluding special items** (ZARm) 306 266 998 * Sales less operating profit excluding special items divided b
Slide 41: Paper pulp prices
Paper pulp prices 1,300 1,100 1,200 1,000 1,100 900 1,000 800 US$/ton 900 800 700 700 600 600 500 500 400 400 2-Apr 2-Nov 2-Apr 2-Apr 2-May 2-Jun 2-Sep 2-Nov 2-Feb 2-Mar 2-Jul 2-Oct 2-Dec 2-Feb 2-Mar 2-May 2-Jun 2-Sep 2-May 2-Jun 2-Sep 2-Jan 2-Aug 2-Jan 2-Jul 2-Oct 2-Dec 2-Feb 2-Mar 2-Jul 2-Oct 2-Au
Slide 42: Dissolving pulp prices
Dissolving pulp prices 1,100 1,050 1,000 950 900 US$/ton 850 800 750 700 650 600 Imp SW DP Imp HW DP China origin DP Source: CCF group. 42
Slide 43: Textile fibre prices
Textile fibre prices 3,000 2,500 2,000 US$\ton 1,500 1,000 500 0 Cotton 328 Cotton "A" Index PSF 1.4 D VSF 1.2 D VSF 1.5 D Source: CCF group. 43
Slide 44: Cash flow
Cash flow US$m Q4 FY20 Q3 FY20 Q4 FY19 Cash generated from operations 46 25 176 Movement in working capital 135 20 132 Finance costs paid (7) (48) (5) Finance income received 2 1 3 Taxation (paid) refund 4 (13) - Dividend paid - - - Cash generated from operating activities 180 11 306 Cash utilised i
Slide 45: EBITDA and operating profit
EBITDA and operating profit Excluding special items* reconciliation to reported operating profit US$m Q4 FY20 Q3 FY20 Q4 FY19 EBITDA excluding special items* 82 26 185 Depreciation and amortisation (87) (78) (76) Operating profit excluding special items* (5) (52) 109 Special items* - gains (losses)
Slide 46: Thank you
sappi Thank you