Slide 1: Q3 FY20 financial results
Steve Binnie Chief Executive Officer, Sappi Limited 30 July 2020 Q3 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—Q3 FY20
Highlights—Q3 FY20 Excluding special items* • Severe impact from Covid-19 on profitability EBITDA* US$26m • Significant declines in demand and lower sales Down 78% YOY prices for graphic paper and dissolving pulp • Packaging and speciality papers segment continued Net debt/EBITDA to grow volumes and
Slide 4: EBITDA reconciliation
EBITDA* reconciliation Q3 FY20 to Q FY319 130 90 50 US$ million 10 (30) (70) (110) (150) 118 (112) (127) 76 49 5 17 26 Q3 FY19 EBITDA Sales volume Price & mix Variable & delivery Fixed costs Other Exchange rate Q3 FY20 EBITDA costs 1. All variances were calculated excluding Sappi Forestry. 2. ‘Curre
Slide 5: Product contribution split—LTM
Product contribution split—LTM EBITDA excluding special items Operating profit excluding special items 10% 26% Dissolving pulp 37% 35% 34% 38% Packaging and specialities Graphics 56% 37% 27% * Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported oper
Slide 6: Segment volume & EBITDA margin
Segment volume & EBITDA* margin 1,100 350 20.0% 1,000 8.0% 300 900 15.0% 800 3.0% 250 10.0% 700 -2.0% 200 600 5.0% -7.0% 150 500 400 -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% Diss
Slide 7: Maturity profile
Maturity profile* Fiscal years 600 530 500 459 EUR450m bond EUR350m bond 400 US$ million 300 237 221 190 200 US$221m bond 144 113 87 100 65 39 43 46 51 23 22 25 0 2020 2021 2022 2023 2024 2025 2026 2027 2032 Cash Short-term SPH term debt Securitisation SSA RCF * Graph excludes US$97 million in IFRS1
Slide 8: Capex
Capex 600 500 400 US$ million 300 200 100 0 2016 2017 2018 2019 2020E Maintenance Efficiency and expansion 8
Slide 9: Segmental overview
Segmental overview Sappi Europe Sappi North America Sappi South Africa 9
Slide 10: Sappi Europe
Sappi Europe • Declines in graphic paper demand across Europe Sales tons -32% and key export markets year-on-year • 369kt commercial downtime required, approximately US$90m EBITDA impact Variable costs -6% • Certain packaging and speciality paper grades year-on-year unaffected by Covid-19 – profitab
Slide 11: Sappi North America
Sappi North America • Strong growth in packaging volumes, with improved Sales tons -4%* product mix towards higher value products year-on-year • Graphic paper volumes severely impacted by economic lockdown in the US, commercial Packaging and downtime of 107kt specialities vol +67% • Lower DP demand
Slide 12: Sappi South Africa
Sappi South Africa • DP sales volumes 21% below the prior quarter Sales tons -17% necessitating 76kt commercial downtime year-on-year • DP US$ sales prices continued to decline; benefit from weaker US$/ZAR exchange rate R200m savings • Packaging volumes and prices were flat year-on-year from shut •
Slide 13: Covid-19 update: Cash management
Covid-19 update Cash management • Financing activities – Negotiated covenant suspension for 12 months (to March 2021) – Repaid SA debt maturities with a 12 month bank bridge facility and new SSA07 public bond • Reviewed capital expenditure commitments—US$100m reduction in H2 – Force majeure on Saicc
Slide 14: Covid-19 update: Markets
Covid-19 update Markets • Graphic papers – Lower advertising spend and lockdowns resulting in significant retail slowdown causing significant reduction in graphic papers demand globally – Demand declines of approximately -40% in Europe for CWF and CM, and -35% in US. – Newsprint and Office paper hea
Slide 15: Covid-19 update: Markets, dissolving pulp
Covid-19 update Markets • Dissolving pulp – Retail lockdowns in many geographies have impacted entire textile supply chain – Growth in e-commerce/online sales not enough to offset impact on brick and mortar stores – Demand down approximately 29% in Q3, pace of recovery picking up – Customers plants
Slide 16: US retail clothing sales start to recover in May
US retail clothing sales start to recover in May, inventories decline US$m US$m Source: US Federal Reserve 16
Slide 17: Sappi's 2025 strategy will cover two phases
Sappi’s 2025 strategy will cover two phases 17
Slide 18: Phase 1: Strengthen balance sheet (2020–2021)
Phase 1 Strengthen balance sheet (2020–2021) Objective Strategy Reduce debt and • Complete approved projects on time and within budget maximise cash • Drive further margin generation improvement opportunities • Investigate capacity expansions • Investigate new growth opportunities 18
Slide 19: Phase 2: Invest for profit growth (2022+)
Phase 2 Invest for profit growth (2022+) 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 19
Slide 20: 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. 20
Slide 21: Group strategy update
Group strategy Update • Achieve cost advantages – Group efficiency and procurement saving initiatives in FY20: US$100m—an increase of US$36m – Saiccor Mill expansion delay due to Force Majeure, project has commenced; Completion in Q3 FY21—will improve efficiency and lower costs once complete • Ratio
Slide 22: Outlook
Outlook • Estimate dissolving pulp and graphic paper volumes to be 75% and 70% of prior year levels respectively • Market for DP recovering faster than this; pricing under pressure, resulting in additional paper pulp at Cloquet • Port and shipping issues in South Africa hampering a further recovery
Slide 23: Thank you
sappi Thank you
Slide 24: Supplementary information
Supplementary information 24
Slide 25: EBITDA and operating profit
EBITDA and operating profit Excluding special items* 250 200 224 221 211 208 152 201 148 197 145 142 136 187 185 128 150 172 117 109 105 155 155 139 93 131 100 85 118 62 US$ million 52 48 50 26 0 -50 -52 -100 EBITDA * Refer to the supplementary information in this presentation for a reconciliation o
Slide 26: Net debt/EBITDA development
Net debt/EBITDA* development 2,600 4.1 4.5 2,400 4.0 3.5 2,200 2.6 3.0 2,000 2.5 1977 1,916 1,800 1,879 US$ million 2.0 1,734 1,728 1,600 1,680 1,652 1.5 1,632 1,603 1,583 1,568 1,557 1,400 1,501 1.0 1,408 1,349 1,338 1,329 1,322 1,318 1,200 0.5 1,000 0.0 Net debt Net debt/LTM EBITDA** * EBITDA is e
Slide 27: 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 28: Packaging and speciality papers
Packaging and speciality papers Sappi Europe 28
Slide 29: 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 29
Slide 30: Packaging and speciality papers volume growth 2015 to 2020
Packaging and speciality papers volume growth 2015 to 2020 1,400 1,200 1,129 1,009 1,000 884 887 854 800 600 400 200 - 2015 2016 2017 2018 2019 2020F Flexpack Label Paperboard Self Adhesives Digital Imaging Functional papers Casting Containerboard Tissue Other 30
Slide 31: 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 32: Paperboard segments
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 33: Sappi Europe
Sappi Europe Q3 FY20 Q2 FY20 Q3 FY19 Tons sold (‘000) 540 793 789 Sales (EURm) 420 606 637 Price/Ton (EUR) 778 764 807 Cost/Ton* (EUR) 837 733 785 Operating profit excluding special items** (EURm) (32) 25 18 * Sales less operating profit excluding special items divided by tons sold. ** Refer to the
Slide 34: 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. 40
Slide 35: Sappi North America
Sappi North America Q3 FY20 Q2 FY20 Q3 FY19 Tons sold (‘000) 307 416 320 Sales (USDm) 267 387 343 Price/Ton (USD) 870 930 1,072 Cost/Ton* (USD) 974 921 1,100 Operating profit excluding special items** (USDm) (32) 4 (9) * Sales less operating profit excluding special items divided by tons sold. ** Re
Slide 36: 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. 42
Slide 37: Sappi South Africa
Sappi South Africa Q3 FY20 Q2 FY20 Q3 FY19 Tons sold (‘000) 310 389 375 Sales (ZARm) 3,506 3,979 4,418 Price/Ton (ZAR) 11,310 10,229 11,781 Cost/Ton* (ZAR) 10,452 9,404 10,459 Operating profit excluding special items** (ZARm) 266 321 496 * Sales less operating profit excluding special items divided
Slide 38: Paper pulp prices
Paper pulp prices 1,300 1,100 1,200 1,000 1,100 900 1,000 800 US$/ton 900 800 700 700 600 600 500 500 400 400 2-Apr 2-Apr 2-Apr 2-Nov 2-Nov 2-May 2-Sep 2-May 2-Sep 2-May 2-Feb 2-Mar 2-Oct 2-Dec 2-Feb 2-Mar 2-Oct 2-Dec 2-Feb 2-Mar 2-Jan 2-Aug 2-Jan 2-Aug 2-Jan 2-Jun 2-Jun 2-Jun 2-Jul 2-Jul 2-Jul NBSK
Slide 39: Dissolving pulp prices
Dissolving pulp prices 1,100 1,050 1,000 950 900 US$/ton 850 800 750 700 650 600 Imp SW DP Imp HW DP China origin DP Source: CCF group. 45
Slide 40: Textile fibre prices
Textile fibre prices 3,000 2,500 2,000 US$\ton 1,500 1,000 500 0 Cotton 328 Cotton "A" Index PSF 1.4 D VSF 1.2 D VSF 1.5 D Source: CCF group. 46
Slide 41: Cash flow
Cash flow US$m Q3 FY20 Q2 FY20 Q3 FY19 Cash generated from operations 25 116 118 Movement in working capital 20 (14) 20 Finance costs paid (48) (18) (16) Finance income received 1 1 1 Taxation (paid) refund 13 (11) (5) Dividend paid - - - Cash generated from operating activities 11 74 118 Cash utili
Slide 42: EBITDA and operating profit
EBITDA and operating profit Excluding special items* reconciliation to reported operating profit US$m Q3 FY20 Q2 FY20 Q3 FY19 EBITDA excluding special items* 26 131 118 Depreciation and amortisation (78) (79) (70) Operating profit excluding special items* (52) 52 48 Special items* - gains (losses) (
Slide 43: Thank you
sappi Thank you