q3 fy16 financial results - sappi q3 2016 results presentation.pdfq3 fy16 financial results. 2 ......

4 August 2016

Chief Executive Officer

Steve Binnie

Sappi Limited

Q3 FY16 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$160m (Q3 FY15 US$109m)

Profit for the period US$32m (Q3 FY15 US$4m)

EPS ex-special items 11 US cents (Q3 FY15 2 US cents)

Net debt US$1,583m, down US$334m year-on-year

Q3 FY16

5

EBITDA and operating profit

140

109

160

67

43

97

0

20

40

60

80

100

120

140

160

180

Q3 FY14 Q3 FY15 Q3 FY16

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 22 in our Q3 FY16 results booklet (available on www.sappi.com) for a definition of special items.

Excluding special items*

Q3 FY14

Q3 FY15

Q3 FY16

Net Debt/ LTM EBITDA 3.7 3.1 2.2

Interest Cover 3.4 3.9 7.0

EBITDA % 9.4 8.6 13.1

ROCE % 7.8 5.7 14.0

Key ratios

-15

-4 -9

109

8

50

21

160

40

60

80

100

120

140

160

180

EBITDAQ3 FY15

Sales Volume Price & Mix Variable &Delivery Costs

Exchange Rate Fixed Costs Other EBITDAQ3 FY16

6

EBITDA Bridge*Q3 FY15 to Q3 FY16

Sales revenue

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.


US

D m

illio

n

7

Product contribution split - LTM

Specialised cellulose

46%

Paper54%

EBITDA excluding special items*

Specialised cellulose

61% Paper39%

Operating profit excluding special items

* Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page 22 in our Q3 FY16 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 development

2 38

0

2 24

8

2 28

6

1 94

6 2 04

0

1 91

6

1 91

7

1 77

1

1 73

4

1 65

2

1583

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

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

2.2

4.6

9

Cumulative Cash Flow

(500)

(300)

(100)

100

300

500

700O

ct-1

2

Dec

-12

Feb-

13

Apr

-13

Jun-

13

Aug

-13

Oct

-13

Dec

-13

Feb-

14

Apr

-14

Jun-

14

Aug

-14

Oct

-14

Dec

-14

Feb-

15

Apr

-15

Jun-

15

Aug

-15

Oct

-15

Dec

-15

Feb-

16

Apr

-16

Jun-

16

US$m

Ngodwana and Ngodwana and Cloquet projects

completed

542

65

512

500

389

221

33

33

76

309

0

100

200

300

400

500

600

2016 2017 2018 2019 2020 2021 2022 2023 2032

US

$ m

illio

n

Cash Short-term SPH term debt SSA Securitisation

10

Maturity profileFiscal years

Includes US$400m bond

EUR 350m bond

US$221m bond

EUR450m bond

11

Capex development

0

100

200

300

400

500

600

2012 2013 2014 2015 2016 Estimate

US

$ m

illio

n

Maintenance Efficiency

12

Divisional overviews

13

Global paper market trends Supply and demand Uncertain macro backdrop leads to decline in consumer confidence

and advertising spend Operating rates declining Industry closures/conversions required in coming periods

Selling prices and input costs Selling prices declining – driven by operating rates and currency Variable costs still low – pulp, energy and chemicals

Strategy Reduce or convert capacity in line with demand declines Reduce fixed and variable costs

Improved year-on-year performance despite soft demand and flat pricing

Speciality paper volumes up 15% whereas market average is 1%-5%

Variable costs were down across all major categories due to favourable pricing and

efficiency improvements

14

Sappi Europe

0%

2%

4%

6%

8%

10%

12%

0

20

40

60

80

100

Q3 FY13 Q3 FY14 Q3 FY15 Q3 FY16

US

$ m

illio

n

EBITDA* EBITDA Margin*

* 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 22 in our Q3 FY16 results booklet (available on www.sappi.com) for a definition of special items.** Source: RISI

Flexible Packaging and Label PapersW. Europe Apparent Consumption Forecast**

-6%

-5%

-4%

-3%

-2%

-1%

0%16 v 15 17 v 16

CWF CM

15

Sappi North America

0%

1%

2%

3%

4%

5%

6%

0

10

20

30

Q3 FY13 Q3 FY14 Q3 FY15 Q3 FY16

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 22 in our Q3 FY16 results booklet (available on www.sappi.com) for a definition of special items.** Source: RISI

Market conditions remain challenging – realised paper prices down 5% from last year

DWP business had increased volumes with higher average prices

Release business volumes were up with growth coming in the decorative laminate and

automotive end-use segments

Lower variable costs, particularly chemicals, wood and energy helped improve margins

-4%

-3%

-2%

-1%

0%16 v 15 17 v 16

CWF

N. America Apparent Consumption Forecast**

16

Global specialised cellulose market trends

Supply and demand Most swing capacity has entered the market as hardwood paper

pulp prices fell Continued strong demand

Selling prices and input costs Spot prices rising alongside cotton and VSF prices Currency fluctuations generally favour producers with non-USD cost

base

Strategy Maintain low-cost position Continue working with customers to support common growth Investigate adjacent end-uses

17

Sappi Southern Africa

0%

5%

10%

15%

20%

25%

30%

35%

0

20

40

60

80

100

Q3 FY13 Q3 FY14 Q3 FY15 Q3 FY16

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 22 in our Q3 FY16 results booklet (available on www.sappi.com) for a definition of special items.** Source: CCF

Better margins year-on-year due to timing of maintenance shuts and improved selling

prices - despite lower overall volumes

Weaker exchange rate led to increased wood and chemicals prices, which were offset by

lower energy and raw material usage improvements

Market price - Staple Grade DWP (US$/ton)**

780

800

820

840

860

880

900

920

Jan-

15

Feb-

15

Mar

-15

Apr

-15

May

-15

Jun-

15

Jul-1

5

Aug

-15

Sep

-15

Oct

-15

Nov

-15

Dec

-15

Jan-

16

Feb-

16

Mar

-16

Apr

-16

May

-16

Jun-

16

July

-16

18

Strategic focus

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

annually by 2020 Ongoing continuous improvement across

all mills

19

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 Evaluate graphic paper conversion

opportunities Restructured South African paper business

in 2015 Disposed of SA recycled paper in South

Africa

20

Focus areasRationalise and optimise declining businesses

We will make smaller investments in existing areas with strong potential growth, including pulp, speciality grades and packaging papers Additional packaging at Ngodwana and

Tugela Electricity opportunities in South Africa Debottlenecking of Saiccor and Ngodwana

DWP Explore opportunities in Specialty

Packaging Securing additional HW timber supply in SA

21

Focus areasGrow through moderate investments

US$400m 2017 bonds callable in April Sale of both Enstra and Cape Kraft Mills

completed Refinancing and debt reduction leads to

lower finance cost

22

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

23

Focus areasAccelerate growth in adjacent businesses from a strong base

Outlook

24

25

Outlook

Demand for DWP remains positive, but drought conditions in SA may force us

to curtail production – swing capacity at Cloquet expected to mitigate impact

Graphic paper markets have weakened but low input costs are allowing us to

maintain margins. Q4 orders have been robust

Based on current market conditions, and assuming current exchange rates, we

expect Q4 FY16 EBITDA to be in-line with that of the prior year.

Q4 capex approximately $100m: maintenance, energy and efficiency

Reduce net debt further toward our target of two-times net debt to EBITDA

Thank you –

26

Supplementary information

27

28


458

424

530

222

221

342

0

100

200

300

400

500

600

FYTD '14 FYTD '15 FYTD '16

US

$ m

illio

n

EBITDA Operating profit



FYTD ‘14

FYTD ’15

FYTD ‘16

Net Debt/ LTM EBITDA 3.7 3.1 2.2

Interest Cover 3.4 3.9 7.0

EBITDA % 10.1 10.6 13.9

ROCE % 8.7 9.8 16.4

Key ratios

29


147 17

1

140

200

145 17

0

109

201

175 19

5

160

60

95

67

124

74

104

43

136

112 13

3

97

0

50

100

150

200

250

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

US$

mill

ion

EBITDA Operating profit ex-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

1.0

1.1

1.2

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 Q2

Q1

2008

= 1

CWF MCR CWF 100gsm sheets prices LWC 60gsm offset reels prices

31

Western Europe shipments including export.Source: Cepifine, Cepiprint

Sappi fiscal quarters

W. Europe CWF Shipments

1 200

1 300

1 400

1 500

1 600

1 700

1 800

1 900

Q1 Q2 Q3 Q42013 2014 2015 2016

‘000

Met

ric to

ns

32

Sappi Europe

Q3 FY16 Q3 FY15 YTD 16 YTD 15Tons sold (‘000) 760 792 2,430 2,395Sales (EURm) 540 567 1,745 1,704

Price/Ton (EUR) 711 716 718 711Cost/Ton* (EUR) 678 710 682 694

Operating profit excluding special items** (EURm) 25 5 87 41

* 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 22 in our Q3 FY16 results booklet (available on www.sappi.com) for a definition of special items.

33

* US industry shipments and total US consumptionSource: AF&PA and RISI indexed to calendar Q1 FY08

United States

Coated paper prices and shipments

0.5

0.6

0.7

0.8

0.9

1.0

1.1

1.2

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 Q2

Domestic CFS shipments Total US CFS consumption CFS #3 60lb Rolls prices

Q1

FY08

= 1

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®

34

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

35

36

*Source: AF&PA

Sappi fiscal quarters

NA CWF Apparent Consumption

700

800

900

1 000

1 100

Q1 Q2 Q3 Q42013 2014 2015 2016

‘000

sho

rt to

ns

37

Sappi North America

Q3 FY16 Q3 FY15 YTD 16 YTD 15Tons sold (‘000) 305 294 966 948Sales (US$m) 325 313 1,007 1,008

Price/Ton (US$) 1,066 1,065 1,042 1,063Cost/Ton* (US$) 1,072 1,088 1,018 1,068

Operating profit excluding special items** (US$m) (2) (7) 24 (4)


38

• Source: FOEX, CCF group

Pulp prices*

600

700

800

900

1 000

US

$/to

n

NBSK Europe BHKP Europe Commodity DWP

39

Textile Fibre Prices

800

1 200

1 600

2 000

2 400

2 800

Jul-1

5

Aug

-15

Sep

-15

Oct

-15

Nov

-15

Dec

-15

Jan-

16

Feb-

16

Mar

-16

Apr

-16

May

-16

Jun-

16

Jul-1

6

VSF 1.2D VSF 1.5D PSF 1.4D3 Cotton 328 Cotton "A" IndexUS$/t

40

Sappi South Africa

Q3 FY16 Q3 FY15 YTD 16 YTD 15Tons sold (‘000) 407 436 1,197 1,286Sales (ZARm) 4,097 3,798 12,267 11,095

Price/Ton (ZAR) 10,066 8,711 10,248 8,627Cost/Ton* (ZAR) 7,486 7,477 7,530 7,059

Operating profit excluding special items** (ZARm) 1,050 538 3,254 2,016


Excluding Sappi Forests

41

Cash flowUS$m Q3 16 Q3 15 YTD 16 YTD 15Cash generated from operations 144 90 502 363Movement in working capital 56 16 (66) (97)

Net finance costs paid (29) (21) (87) (111)

Taxation paid (32) (12) (54) (16)

Cash generated from operating activities 139 73 295 139Cash utilised in investing activities (57) (48) (104) (153)Capital expenditure (59) (49) (144) (163)

Net proceeds on disposal of assets 1 - 39 -

Other movements 1 1 1 10

Net cash generated (utilised) 82 25 191 (14)

42


US$m Q3 FY16 Q3 FY15 YTD 16 YTD 15

EBITDA excluding special items* 160 109 530 424Depreciation and amortisation (63) (66) (188) (203)

Operating profit excluding special items* 97 43 342 221

Special Items* - gains (losses) (1) (8) 32 55

Plantation price fair value adjustment 12 - 40 19

Net restructuring provisions - (1) (4) (4)

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

Employee benefit liability settlement - (1) - 56

BEE charge - - (1) (1)

Fire, flood, storm and other events (13) (6) (19) (15)

Segment operating profit 96 35 374 276

* Refer to page 22 in our Q3 FY16 results booklet (available on www.sappi.com) for a definition of special items.

Excluding special items reconciliation to reported operating profit

43

Thank you

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