q2 fy17 financial results - sappi fy17 financial...q2 fy17 financial results 2 forward-looking...

15 May 2017

Chief Executive Officer

Steve Binnie

Sappi Limited

Q2 FY17 financial results

2

Forward-looking statementsCertain statements in this release that are neither reported financial results nor other historical information, are forward-looking statements, including but not limited tostatements that are predictions of or indicate future earnings, savings, synergies, events, trends, plans or objectives. The words “believe”, “anticipate”, “expect”,“intend”, “estimate”, “plan”, “assume”, “positioned”, “will”, “may”, “should”, “risk” and other similar expressions, which are predictions of or indicate future events andfuture trends and which do not relate to historical matters, identify forward-looking statements. In addition, this document includes forward-looking statements relatingto our potential exposure to various types of market risks, such as interest rate risk, foreign exchange rate risk and commodity price risk. You should not rely onforward-looking statements because they involve known and unknown risks, uncertainties and other factors which are in some cases beyond our control and maycause our actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by suchforward-looking statements (and from past results, performance or achievements). Certain factors that may cause such differences include but are not limited to:

• the highly cyclical nature of the pulp and paper industry (and the factors that contribute to such cyclicality, such as levels of demand, production capacity, production, input costs including raw material, energy and employee costs, and pricing);

• the impact on our business of adverse changes in global economic conditions;• unanticipated production disruptions (including as a result of planned or unexpected power outages);• changes in environmental, tax and other laws and regulations;• adverse changes in the markets for our products;• the emergence of new technologies and changes in consumer trends including increased preferences for digital media;• consequences of our leverage, including as a result of adverse changes in credit markets that affect our ability to raise capital when needed;• adverse changes in the political situation and economy in the countries in which we operate or the effect of governmental efforts to address present or future

economic or social problems;• the impact of restructurings, investments, acquisitions, dispositions and other strategic initiatives (including related financing), any delays, unexpected costs or

other problems experienced in connection with dispositions or with integrating acquisitions or implementing restructurings or other strategic initiatives, and achieving expected savings and synergies;

• currency fluctuations.We undertake no obligation to publicly update or revise any of these forward-looking statements, whether to reflect new information or future events or circumstances or otherwise.

Forward-looking statements and Regulation G

Regulation G disclosureCertain non-GAAP financial information is contained in this presentation that management believe may be useful in comparing the company’s operating results fromperiod to period. Reconciliation's of certain of the non-GAAP measures to the corresponding GAAP measures can be found in the quarterly results booklet for therelevant period. These booklets are located in the ‘Investors | Financial information’ section of www.sappi.com.

Summary

3

4

Highlights

EBITDA ex-special items US$208m (Q2 FY16 US$195m)

Profit for the period US$88m (Q2 FY16 US$100m)

EPS ex-special items 17 US cents (Q2 FY16 16 US cents)

Net debt US$1,329m, down US$323m year-on-year

Q2 FY17

5

EBITDA and operating profit

170

195 20

8

104

133 14

5

0

50

100

150

200

250

Q2 FY15 Q2 FY16 Q2 FY17

US

$ m

illio

n

EBITDA Operating profit

* Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page 21 in our Q2 FY17 results booklet (available on www.sappi.com) for a definition of special items.

Excluding special items*

Q2 FY15

Q2 FY16

Q2 FY17

Net Debt/ LTM EBITDA 2.9 2.4 1.7

Interest Cover 3.7 6.5 7.7

EBITDA % 12.7 15.1 15.8

ROCE % 13.5 19.3 20.5

Key ratios

o All variances calculated excluding Sappi Forestry.

o “Exchange rate” reflects the impact of changes in the average rates of translation of foreign currency results.

(18)

195

3

13

76

2

208

140

150

160

170

180

190

200

210

220

230

240

EBITDAQ2 FY16

Sales Volume Price & Mix Variable &Delivery Costs

Fixed Costs Other Exchange Rate EBITDAQ2 FY17

6

EBITDA Bridge*Q2 FY16 to Q2 FY17

Sales revenue


US

D m

illio

n

7

Product contribution split - LTM

Specialised cellulose

49%

Paper51%

EBITDA excluding special items*

Specialised cellulose

63%

Paper37%

Operating profit ex special items

* Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page 21 in our Q2 FY17 results booklet (available on www.sappi.com) for a definition of special items. Data above excludes treasury operations and insurance captive.

8

Net debt/EBITDA development2

380

224

8

228

6

194

6 204

0

191

6

191

7

177

1

173

4

165

2

1583

1408

1338

1329

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

1 000

1 200

1 400

1 600

1 800

2 000

2 200

2 400

2 600

Q1 FY14 Q2 FY14 Q3 FY14 Q4 FY14 Q1 FY15 Q2 FY15 Q3 FY15 Q4 FY15 Q1 FY16 Q2 FY16 Q3 FY16 Q4 FY16 Q1 FY17 Q2 FY17

US

$ m

illio

n

Net Debt Net debt/LTM EBITDA**

* EBITDA is excluding special items** The covenant Net debt/LTM EBITDA calculation has adjustments and therefore differs from that shown above

1.7

4.6

9

Maturity profileFiscal years

703

62

487 479

373

221302

3785

0

100

200

300

400

500

600

700

800

2017 2018 2019 2020 2021 2022 2023 2032

Cash Short-Term SPH Term Debt Securitisation SSA

Includes USD 400m bond

EURO 450m bond

EURO 350m bond

USD 221m bond

US$m

10

Capex development

0

100

200

300

400

500

600

2013 2014 2015 2016 2017E 2018E 2019E

US

$m

Maintenance Efficiency & Expansion

11

Divisional overviews

12

Global paper market trends

Supply and demand Continued weakness in graphic markets Necessitating industry closures/conversions – SC closures announced Speciality packaging paper demand continues to grow 1%-5%

Selling prices and input costs Selling prices have stabilised after past year delines, price increases required

in Europe to offset input cost increases Most variable costs still low, pulp and latex costs rising steeply.

Strategy Conversion of coated capacity to packaging in line with coated demand

declines Cost and efficiency programs to reduce fixed and variable

40

50

60

70

80

Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17

Speciality Packaging Volumes

Margins declined due to lower year-on-year coated paper selling prices - price increases

announced

Variable costs starting to rise, primarily due to latex and pulp

Speciality paper performance was stronger on improved volumes

13

Sappi Europe

* EBITDA and EBITDA margin shown exclude special items. Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page 21 in our Q12FY17 results booklet (available on www.sappi.com) for a definition of special items.

‘000

tons

0%

2%

4%

6%

8%

10%

12%

0

20

40

60

80

100

Q2 FY14 Q2 FY15 Q2 FY16 Q2 FY17

US

$ m

illio

n

EBITDA* EBITDA Margin*

14

Sappi North America

0%

2%

4%

6%

8%

10%

12%

0

10

20

30

40

Q2 FY14 Q2 FY15 Q2 FY16 Q2 FY17

US

$ m

illio

n


* EBITDA and EBITDA margin shown exclude special items. Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page 21 in our Q2 FY17 results booklet (available on www.sappi.com) for a definition of special items.** Source: AF&PA

150

160

170

180

190

200

1H FY16 1H FY17Europe Asia & ROW

CWF Imports into US by source**

Improved profitability on lower variable costs and efficiency initiatives

Higher DWP prices and increased speciality and packaging sales volumes contributed

Coated paper under pressure from weak demand and lower pricing

15

Global DWP market trends

Supply and demand Continued strong demand from new viscose capacity New DWP capacity has been delayed – limited capacity addition 2017/2018

Selling prices and input costs Textile fibre price declines lead to lower DWP prices during April Commodity prices and currency moves impacting cost base

Strategy Maintain low-cost position Continue working with customers to support common growth Debottlenecking SA mills – to add up to 100kt in next two years

16

Sappi Southern Africa

0%

5%

10%

15%

20%

25%

30%

35%

0

20

40

60

80

100

120

Q2 FY14 Q2 FY15 Q2 FY16 Q2 FY17

US

$ m

illio

n


* EBITDA and EBITDA margin shown exclude special items. Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page 21 in our Q2 FY17 results booklet (available on www.sappi.com) for a definition of special items.** Source: CCF

Continued robust margins on higher DWP volumes and prices offset increased variable

costs and the stronger ZAR/US$ exchange rate

Saiccor’s annual maintenance shut (March) expected to resolve recent production issues

Strong recovery in volumes for our containerboard, expected to continue

Market price – Hardwood DWP (US$/ton)**

775

800

825

850

875

900

925

950

975

1000

17

Strategic focus

We work to lower fixed and variable costs, increase cost efficiencies and invest for cost advantages Saiccor and Tugela turbines – FY2016/17 Group procurement initiatives >$100m

annually by 2020 – US$63m by end 2017 Ongoing continuous improvement across

all mills US$25m investment in Somerset

Woodyard

18

Focus areasAchieve cost advantages

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 Progressive transition of Lanaken out of

LWC Reduced CWF exposure at Maastricht,

Ehingen and Somerset PM1

19

Focus areasRationalise and optimise declining businesses

We will make investments in existing areas with strong potential growth, including pulp, speciality grades and packaging papers Debottlenecking of Saiccor and Ngodwana

DWP Investments in Somerset, Maastricht, Alfeld

and Ehingen Additional packaging at Ngodwana and

Tugela Electricity opportunities in South Africa Securing additional HW timber supply

20

Focus areasGrow through moderate investments

21

Growth through moderate investments

0%

5%

10%

15%

20%

25%

2013* 2014* 2015 2016 Q1 FY17 Q2 FY17

ROCE %

* Sappi begins/completes investments in Specialised Cellulose

• Moderate investments in cost efficiency and energy generation projects have delivered good returns to date

• We are now moving into the next phase of our strategy via investments for growth

22

Growth through moderate investments

Investing in speciality packaging businesses in Europe and North America

• US$140m at Maastricht, Ehingen, Alfeld and Lanaken

• Maastricht, Ehingen and Alfeld to expand offering

• Investments to be made over a 3-year period

• Additional 200kt/annum of SBB,FBB and WTL sales within 3 years

• Lanaken to pick up displaced CWF volumes

• US$165m at Somerset

• Enable PM1 to make packaging grades

• Expect to complete in Q3 2018

• 3 year ramp up of packaging paper grades to 350kt

US$400m 2017 bonds called in April

US$21m in net finance cost savings/annum

Refinancing and debt reduction leads to

lower finance cost and EPS growth

23

Focus areasGenerate cash to strengthen the balance sheet

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 – lignins, sugars Expanded DWP portfolio – nano-cellulose,

other speciality grades

24

Focus areasAccelerate growth in adjacent businesses from a strong base

Outlook

25

26

Outlook

DWP demand remains favourable; pricing currently under pressure from textile

fibre prices.

Graphic paper markets expected to remain weak - input costs and sales pricing

key to profitability in coming quarters

Continued growth in speciality packaging paper sales – conversion projects

underway

Rand/US$ exchange rate remains materially stronger than in FY16, impacting

SA margins

Based on current market conditions, we expect Q3 FY17 EBITDA to be lower

than last year. FY17 expected to be better than FY16.

Thank you –

27

Supplementary information

28

29


145

170

109

201

175

195

160

209

201 20

8

74

104

43

136

112

133

97

145

136 14

5

0

50

100

150

200

250

US$

mill

ion

EBITDA Operating profit ex special items


Excluding special items*

30

Western Europe shipments including export.Source: Cepifine, Cepiprint and RISI indexed to calendar 1Q 2008

Western Europe

Coated paper deliveries and prices

0.5

0.6

0.7

0.8

0.9

1

1.1

1.2

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

31

Sappi Europe

Q2 FY17 Q2 FY16 1H 17 1H 16Tons sold (‘000) 839 834 1,706 1,670Sales (EURm) 581 604 1,183 1,205

Price/Ton (EUR) 692 724 693 722Cost/Ton* (EUR) 658 685 653 685

Operating profit excluding special items** (EURm) 29 33 69 62

* Sales less operating profit excluding special items divided by tons sold.** Refer to the supplementary information in this presentation for a reconciliation to reported operating profit and page 21 in our Q2 FY17 results booklet (available on www.sappi.com) for a definition of special items.

Sappi Somerset (USA)

Label Paper – LusterCote® and Flex. Pack. Paper - LusterPrint®

Sappi Packaging and Speciality PapersGlobal production sites

Sappi Westbrook (USA)

Release Paper – Ultracast®

and different classic brands

Sappi Alfeld (Germany)

Flexible Packaging, Label, SBB Board, Topliner and Release Liner

Sappi Maastricht (Netherlands)

Folding Box Board - atelier™

Sappi Tugela (South Africa)

Liner – Ultratest and Fluting – Ultraflute™

Sappi Ngodwana (South Africa)

Liner – Kraftpride™

Sappi Ehingen (Germany)

Topliner - Fusion®

Sappi Cloquet (USA)

Label Paper – LusterCote®

32

Markets and Growth ratesGlobal Market size – Speciality packaging

Source for growth rates: AWA, Pira and Risi

Flexible Packaging and Label Papers

o C1S paperso 1.2 mtonso Growth: 2-3 % p.a.

Release Liner

o CCK graphic artso 300 ktonso Growth: 6 % p.a.

Rigid Packaging

o SBS printing andconverting

o 4.7 mtonso Growth: 2 % p.a.

Containerboard

o Coated White Topliner

o 1 mtonso Growth: 1-2 % p.a.

Functional Papers

o Barrier and greaseresistant papers

o Virtually unlimited

33

34

• US industry purchases defined as industry shipments, plus imports, less exports• Source: AF&PA and RISI indexed to calendar Q1 FY08

United States

Coated paper prices and shipmentsQ

1 FY

08 =

1

0.5

0.6

0.7

0.8

0.9

1

1.1

1.2

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 60 lb rolls

35

Sappi North America

Q2 FY17 Q2 FY16 1H FY17 1H FY16Tons sold (‘000) 329 331 682 661Sales (US$m) 335 339 689 682

Price/Ton (US$) 1,018 1,024 1,010 1,032Cost/Ton* (US$) 976 985 978 992

Operating profit excluding special items** (US$m) 14 13 22 26

* Sales less operating profit excluding special items divided by tons sold.** Refer to the supplementary information in this presentation for a reconciliation to reported operating profit and page xx in our Q2 FY17 results booklet (available on www.sappi.com) for a definition of special items.

36

• Source: FOEX, CCF group

Pulp prices*

600

700

800

900

1 000

US

$/to

n

NBSK Europe BHKP Europe Commodity DWP

37

Textile Fibre Prices

US$/t

800

1 200

1 600

2 000

2 400

2 800

Apr

-15

Jul-1

5

Oct

-15

Jan-

16

Apr

-16

Jul-1

6

Oct

-16

Jan-

17

Apr

-17

Cotton 328 Cotton "A" Index PSF 1.4 D VSF 1.2 D VSF 1.5 D

38

Sappi South Africa

Q2 FY17 Q2 FY16 1H FY17 1H FY16Tons sold (‘000) 408 404 772 790Sales (ZARm) 4,619 4,376 8,641 8,171

Price/Ton (ZAR) 11,321 10,832 11,193 10,343Cost/Ton* (ZAR) 8,093 7,725 7,972 7,553

Operating profit excluding special items** (ZARm) 1,317 1,255 2,486 2,204

* Sales less operating profit excluding special items divided by tons sold.** Refer to the supplementary information in this presentation for a reconciliation to reported operating profit and page 21 in our Q2 FY17 results booklet (available on www.sappi.com) for a definition of special items.

Excluding Sappi Forests

39

Cash flowUS$m Q2 FY17 Q2 FY16 1H FY17 1H FY16Cash generated from operations 203 187 405 358Movement in working capital (26) (22) (123) (122)

Net finance costs paid (24) (22) (41) (58)

Taxation paid (32) (4) (66) (22)

Dividend paid (59) - (59) -

Cash generated from operating activities 62 139 116 156Cash utilised in investing activities (42) (49) (79) (47)Capital expenditure (45) (45) (82) (85)

Net proceeds on disposal of assets 1 (3) 3 38

Other movements 2 (1) - -

Net cash generated (utilised) 20 90 37 109

40


US$m Q2 FY17 Q2 FY16 1H FY17 1H FY16

EBITDA excluding special items* 208 195 409 370Depreciation and amortisation (63) (62) (128) (125)

Operating profit excluding special items* 145 133 281 245

Special Items* - gains (losses) (3) 22 4 33

Plantation price fair value adjustment 1 26 12 28

Net restructuring provisions - (1) - (4)

Profit on disposal of asset held for sale andother assets - 1 - 16

BEE charge (1) (1) (1) (1)

Fire, flood, storm and other events (3) (3) (7) (6)

Segment operating profit 142 155 285 278

* Refer to page 21 in our Q2 FY17 results booklet (available on www.sappi.com) for a definition of special items.

Excluding special items reconciliation to reported operating profit

41

Thank you

q2 fy17 financial results - sappi fy17 financial...q2 fy17 financial results 2 forward-looking...

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