Sappi Limited · JSE:SAP
Sappi — Q2 FY2016 Earnings Presentation
41 slides from Sappi's earnings presentation, May 9, 2016
Slide 1: Q2 FY16 financial results
Q2 FY16 financial results 9 May 2016 Steve Binnie Chief Executive Officer Sappi Limited
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 e
Slide 3: Summary
Summary mio )9) sappli Inspired by life
Slide 4: Highlights
Highlights Q2 FY16 Profit for the period US$100m (Q2 FY15 US$56m) EPS ex-special items 16 US cents (Q2 FY15 11 US cents) EBITDA ex-special items US$195m (Q2 FY15 US$170m) Net debt US$1,652m, down US$264m year-on-year 4
Slide 5: EBITDA and operating profit
EBITDA and operating profit Excluding special items* 250 Key ratios Q2 Q2 Q2 200 FY14 FY15 FY16 195 Net Debt/ 171 170 4.0 2.9 2.4 133 150 LTM EBITDA US$ million 104 Interest Cover 3.1 3.7 6.5 95 100 EBITDA % 10.9 12.7 15.1 50 ROCE % 11.0 13.5 19.3 0 Q2 FY14 Q2 FY15 Q2 FY16 EBITDA Operating profit 5
Slide 6: EBITDA Bridge
EBITDA Bridge* Q2 FY15 to Q2 FY16 320 Sales revenue 280 240 200 160 120 80 40 0 170 (1) 82 24 (46) (34) 195 Q2 FY15 EBITDA Sales volume Price & mix Variable & delivery Fixed costs Exchange rate Q2 FY16 EBITDA costs o All variances calculated excluding Sappi Forestry. o EBITDA above excludes special
Slide 7: Product contribution split - LTM
Product contribution split - LTM EBITDA excluding special items* Operating profit excluding special items Specialised Paper cellulose 54% 63% Specialised cellulose Paper 46% 37% 7 * Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profi
Slide 8: Net debt/EBITDA development
Net debt/EBITDA development 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 1 917 1 916 1 800 2.5 1 771 1 734 2.0 1 600 1 652 1.5 1 400 1.0 1 200 0.5 1 000 0.0 Q1 FY14 Q2 FY14 Q3 FY14 Q4 FY14 Q1 FY15 Q2 FY15 Q3 FY15 Q4 FY15 Q1 FY16 Q2 FY16 Net Debt Net debt/LTM
Slide 9: Maturity profile
Maturity profile Fiscal years 600 513 503 Includes 457 500 US$400m bond EUR450m bond 400 350 322 US$221m bond US$ million US$350m bond 300 221 200 74 100 49 32 65 0 2016 2017 2018 2019 2020 2021 2022 2032 Cash Short-term SPH term debt SSA Securitisation 9
Slide 10: Post quarter-end refinancing
Post quarter-end refinancing Refinanced our 2021 bonds ($350m 6.625%) New notes now due 2023 (€350m 4.0%) Interest cost to reduce by approximately $8m annually Costs incurred of US$23m to be recognized in Q3 FY16 10
Slide 11: Capital and investment spend
Capital and investment spend 600 500 400 US$ million 300 200 100 0 2012 2013 2014 2015 2016 Estimate Maintenance Efficiency 11
Slide 12: Divisional overviews
Divisional overviews 2016()O) So 2 met = ‘ Intentional
Slide 13: Global paper market trends
Global paper market trends Supply and demand Soft demand in most markets Operating rates declining Mechanical paper grades under pressure Selling prices and input costs CWF and CM sales prices stable Fuel oil, energy and oil-based chemical prices still low Paper pulp prices remain lo
Slide 14: Sappi Europe
Sappi Europe W. Europe Flexible Apparent Consumption Forecast** Packaging 100 12% and Label Papers 16 v 15 17 v 16 EBITDA* EBITDA Margin* 0% 10% 80 -1% 8% 60 -2% US$ million 6% -3% 40 4% -4% 20 2% -5% 0 0% -6% Q2 FY13 Q2 FY14 Q2 FY15 Q2 FY16 CWF CM Improved performance, volumes and prices better t
Slide 15: Sappi North America
Sappi North America N. America Apparent Consumption Forecast** 60 12% 16 v 15 17 v 16 EBITDA* EBITDA Margin* 0% 50 10% 40 8% -1% US$ million 30 6% -2% 20 4% -3% 10 2% 0 0% -4% Q2 FY13 Q2 FY14 Q2 FY15 Q2 FY16 CWF Continued improvement - higher paper volumes, lower costs HW web good demand Prici
Slide 16: Global specialised cellulose market trends
Global specialised cellulose market trends Supply and demand Most swing capacity has entered the market as hardwood paper pulp prices fell Continued strong demand, high Chinese VSF operating rates Selling prices and input costs Spot prices for commodity grade DWP fell during the quarter bu
Slide 17: Sappi Southern Africa
Sappi Southern Africa Spot price - Staple Grade DWP (US$/ton)** 100 35% 920 EBITDA* EBITDA Margin* 30% 900 80 25% 880 60 US$ million 20% 860 15% 840 40 10% 820 20 5% 800 0 0% 780 Nov-14 Dec-14 Jan-15 May-15 Nov-15 Dec-15 Jun-15 Jan-16 Oct-14 Sep-14 Feb-15 Mar-15 Oct-15 Apr-15 Jul-15 Aug-15 Sep-15 Fe
Slide 18: Strategic focus
Strategic focus OD) Achieve cost advanlages x Generate cash lo strengthen balance sheet Rationalise declining businesses a Accelerate growth in jjacent investments Intentional Rationalise f= § evolution “Generate ) | Accelerate — sappli
Slide 19: Focus areas: achieve cost advantages
Focus areas Achieve cost advantages We work to lower fixed and variable costs, increase cost efficiencies and invest for cost advantages Saiccor and Tugela turbines – FY2016/17 Ngodwana boiler upgrade for future debottlecking – Q2 FY2016 Group procurement initiatives >$100m saving annually b
Slide 20: Focus areas: rationalise declining businesses
Focus areas Rationalise and optimise declining businesses Recognising the decreasing demand for graphic paper, we manage our capacity to strengthen our leadership position in these markets, realising their strategic importance to the group and maximising their significant cash flow generation Re
Slide 21: Focus areas: grow through moderate investments
Focus areas Grow through moderate investments We will make smaller investments in existing areas with strong potential growth, including pulp, speciality grades and packaging papers debottlenecking DWP and packaging in SA - ~10% increase in volumes Energy investments in South Africa Explore
Slide 22: Focus areas: generate cash to strengthen balance sheet
Focus areas Generate cash to strengthen the balance sheet Sale of both Enstra and Cape Kraft Mills completed Refinancing and debt reduction leads to lower finance cost 22
Slide 23: Focus areas: accelerate growth in adjacent businesses
Focus areas Accelerate growth in adjacent businesses from a strong base Over the next two years we will continue our focus on having a cleaner, stronger balance sheet so that we can then accelerate our growth in adjacent businesses Speciality packaging paper Biomaterials, biochemicals – lignin
Slide 24: Outlook
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Slide 25: Outlook
Outlook Specialised Cellulose benefiting from rising average USD prices and weaker ZAR/US Dollar exchange rate. Demand remains good and the outlook for this business is positive. In North America variable costs are down significantly while volumes are stable. European business continues to imp
Slide 26: Outlook (cont'd)
Outlook (cont’d) Based on current market conditions, and assuming current exchange rates, we expect the growth in 2H EBITDA ex-items to be in line with 1H FY16. We expect a strong increase in our earnings based on improved operating profits and lower expected finance costs, offset somewhat by in
Slide 27: Thank you
Thank you — zie )9) Inspired by life |
Slide 28: Supplementary information
Supplementary information 28
Slide 29: EBITDA and operating profit
EBITDA and operating profit Excluding special items* 250 200 201 200 195 175 171 170 136 150 133 US$ million 124 147 145 140 112 104 95 109 100 74 67 60 43 50 0 Q1 FY14 Q2 FY14 Q3 FY14 Q4 FY14 Q1 FY15 Q2 FY15 Q3 FY15 Q4 FY15 Q1 FY16 Q2 FY16 EBITDA Operating profit ex-items 29 * Refer to the suppleme
Slide 30: Sappi Packaging and Speciality Papers
Sappi Packaging and Speciality Papers Global production sites Sappi Alfeld (Germany) Sappi Maastricht (Netherlands) Sappi Ehingen (Germany) Sappi Cloquet (USA) Flexible Packaging, Label, SBB Label Paper – LusterCote® Folding Box Board - atelier™ Topliner - Fusion® Board, Topliner and Release Liner S
Slide 31: 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 mtons o 300 ktons converting Topliner res
Slide 32: Coated paper deliveries and prices
Coated paper deliveries and prices Western Europe CWF MCR CWF 100gsm sheets prices LWC 60gsm offset reels prices 1.2 1.1 Q1 2008 = 1 1.0 0.9 0.8 0.7 0.6 Q1 08 Q2 Q3 Q4 Q1 09 Q2 Q3 Q4 Q1 10 Q2 Q3 Q4 Q1 11 Q2 Q3 Q4 Q1 12 Q2 Q3 Q4 Q1 13 Q2 Q3 Q4 Q1 14 Q2 Q3 Q4 Q1 15 Q2 Q3 Q4 Q1 16 32 Western Europe shi
Slide 33: Sappi Europe
Sappi Europe Q2 FY16 Q2 FY15 1H FY16 1H FY15 Tons sold (‘000) 834 828 1,670 1,603 Sales (EURm) 604 590 1,205 1,137 Price/Ton (EUR) 724 713 722 709 Cost/Ton* (EUR) 685 684 685 687 Operating profit excluding 33 24 62 36 special items** (EURm) 33 * Sales less operating profit excluding special items di
Slide 34: Coated paper prices and shipments
Coated paper prices and shipments United States Domestic CFS shipments Total US CFS consumption CFS #3 60lb Rolls prices 1.2 1.1 Q1 FY08 = 1 1.0 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 Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q4 34 * US i
Slide 35: Sappi North America
Sappi North America Q2 FY16 Q2 FY15 1H FY16 1H FY15 Tons sold (‘000) 331 321 661 654 Sales (US$m) 339 342 682 695 Price/Ton (US$) 1,024 1,065 1,032 1,063 Cost/Ton* (US$) 985 1,044 992 1,058 Operating profit excluding 13 7 26 3 special items** (US$m) 35 * Sales less operating profit excluding special
Slide 36: Pulp prices
Pulp prices* 1 000 900 US$/ton 800 700 600 Apr-13 Apr-14 Apr-15 Apr-16 NBSK Europe BHKP Europe Commodity DWP 36 • Source: FOEX, CCF group
Slide 37: Textile Fibre Prices
37 US$/t 800 1 200 1 600 2 000 2 400 2 800 3 200 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 VSF 1.2D Jul-14 Aug-14 Sep-14 Oct-14 VSF 1.5D Nov-14 Dec-14 Textile Fibre Prices Jan-15 Feb-15 PSF 1.4D3 Mar-15 Apr-15 May-15 Jun-15 Cotton 328 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Cotton "A" Index Jan-16
Slide 38: Sappi South Africa
Sappi South Africa Excluding Sappi Forests Q2 FY16 Q2 FY15 1H FY16 1H FY15 Tons sold (‘000) 404 424 790 850 Sales (ZARm) 4,376 3,653 8,171 7,297 Price/Ton (ZAR) 10,832 8,616 10,343 8,585 Cost/Ton* (ZAR) 7,725 6,795 7,553 6,846 Operating profit excluding 1,255 772 2,204 1,478 special items** (ZARm) 3
Slide 39: Cash flow
Cash flow US$m Q2 16 Q2 15 1H 16 1H 15 Cash generated from operations 187 136 358 273 Movement in working capital (22) 23 (122) (113) Net finance costs paid (22) (38) (58) (90) Taxation paid (4) (1) (22) (4) Cash generated from operating activities 139 120 156 66 Cash utilised in investing activitie
Slide 40: EBITDA and operating profit
EBITDA and operating profit Excluding special items reconciliation to reported operating profit US$m Q2 16 Q2 15 1H 16 1H 15 EBITDA excluding special items* 195 170 370 315 Depreciation and amortisation (62) (66) (125) (137) Operating profit excluding special items* 133 104 245 178 Special Items* -
Slide 41: Thank you
Thank you sappi Inspired by life