q3 fy19 financial results - sappi · sappi north america. 12. sales tons +1%. year-on-year. sales...
TRANSCRIPT
1 August 2019
Chief Executive Officer
Steve Binnie
Sappi Limited
Q3 FY19 financial results delivering on
strategy
2019
Vision2020
intentionalevolution
next phase
growth
1
Forward-looking statements and Regulation G
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 to statements that are predictions ofor 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 and future trends and which do not relate to historical matters, identify forward-looking statements. In addition, thisdocument includes forward-looking statements relating to our potential exposure to various types of market risks, such as interest rate risk, foreign exchange rate risk and commodity price risk. Youshould not rely on forward-looking statements because they involve known and unknown risks, uncertainties and other factors which are in some cases beyond our control and may cause our actualresults, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-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 rawmaterial, 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, and 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.
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 from period to period. Reconciliation's ofcertain of the non-GAAP measures to the corresponding GAAP measures can be found in the quarterly results booklet for the relevant period. These booklets are available on our website:https://www.sappi.com/quarterly-reports.
Highlights – Q3 2019
3
EBITDA* $118m
Profit for the periodUS$8 million
EPS* 4 US cents
Acquisition of Matane Mill
o Challenging quarter for our major products
o Commercial downtime of ~89,000t graphic paper• US$19m EBITDA impact estimated
o Lower DWP pricing as VSF operating rates and pricing declined
Key ratios Q3 FY17 Q3 FY18 Q3 FY19
Net debt/LTM EBITDA 1.7 2.1 2.4
Interest cover 8.4 11.0 9.6
EBITDA % 12.3 10.7 8.6
ROCE % 12.8 9.7 5.2
* Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page 22 in our Q3 FY19 financial results booklet (available on www.sappi.com) for a definition of special items.
Excluding special items*
EBITDA* reconciliation
4
Q3 FY18 to Q3 FY19
US$
milli
on
Notes:
1. All variances were calculated excluding Sappi Forestry.
2. “Currency conversion” reflects translation and transactional effect on consolidation.
3. EBITDA = EBITDA excluding special tems
50
75
100
125
150
175
200
155 (18) 29 (40) (10) (6) 8 118
Q3 FY18 EBITDA Sales volume Price & mix Variable & deliverycosts
Fixed costs Other Exchange rate Q3 FY19 EBITDA
Sales revenue
2019 2018Exchange rates:Average rate for the Quarter: US$1 = ZAR 14.3772 12.6312Average rate for the Quarter: €1 = US$ 1.1236 1.1920
Jun
Product contribution split – LTM
5
* Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page 22 in our Q3 FY19 financial results booklet (available on www.sappi.com) for a definition of special items. Data above excludes treasury operations and insurance captive.
44%
17%
39%
Dissolving WoodPulpPackaging &Speciality PapersPrinting & WritingPapers
59%10%
31%
EBITDA excluding special items Operating profit excluding special items
Maturity profileFiscal years
6
226
6721 44 44 21
393
68
512
221
367
81107
0
100
200
300
400
500
600
2019 2020 2021 2022 2023 2024 2025 2026 2032
US$
milli
on
Cash Short-term SPH term debt Securitisation SSA
EUR450m bond
EUR350m bond
US$221m bond
Capex development
7
0
100
200
300
400
500
600
2013 2014 2015 2016 2017 2018 2019E 2020F
US$
milli
on
Maintenance Efficiency and expansion Forecast
8
Market and Segmental overview
Global P&W paper market trends
9
Supply and demand Demand remains very weak Capacity reductions expected in US and Europe over next 18 months
Selling prices and input costs Paper prices beginning to decline – driven by lower demand and lower costs Pulp prices falling, led by China, partially offset by weaker Euro and Rand
Strategy Focus on costs to maintain margins Manage operating rates through downtime, market share, flexibility of machines Reduce or convert capacity in line with demand declines Increase pulp integration over time
Global packaging and speciality paper market trends
10
Supply and demand Additional containerboard conversions entering the market Smaller speciality packaging producers exiting due to cost pressures Demand continues to grow, long-term prospects encouraging, driven by legislation and
consumer preference Brand owners pushing for paper based packaging solutions
Selling prices and input costs Realised prices rose, particularly for flexible packaging, labels, and silicone base papers Pulp prices falling, led by China, partially offset by weaker Euro and Rand
Strategy Ramp-up volumes from conversions, grow into new markets We aim to be an innovative and sustainable supplier Improve pulp integration – Matane acquisition announced
Sappi Europe
11
Sales Tons -5%year-on-year
Sales flatyear-on-year
EBITDA* -24%year-on-year
* Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page 22 in our Q3 FY19 financial results booklet (available on www.sappi.com) for a definition of special items.
o Weak domestic and export demand - downtime of 30k tons ~US$8m EBITDA impact
o Realised prices for graphics were 5% higher and our packaging and specialities were 4% higher than last year
o Variable costs 3% higher than last year, fixed costs flat
o Lanaken conversion complete
Sappi North America
12
Sales Tons +1%year-on-year
Sales +1%year-on-year
EBITDA* -45%year-on-year
* Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page 22 in our Q3 FY19 financial results booklet (available on www.sappi.com) for a definition of special items.
o Commercial downtime of 59kt ~ $11m EBITDA impact
o Cloquet debottlenecking complete
o Packaging and paperboard volumes continue to grow
o Variable costs were 5% higher; fixed costs 7% lower (last year included the extended shut of PM1)
Global DWP market trends
13
Supply and demand VSF capacity growing faster than demand, operating rates declining Demand continues to be strong, growing by ~6% per annum
Selling prices and input costs DWP selling prices declining as VSF prices and margins fall Wood price increases, chemical costs declining
Strategy Grow with the market (debottlenecked volumes 2018/19, 110kt expansion at Saiccor underway) Evaluate external opportunities for more substantial increase in volumes – ROCE critical Commitment to sustainability key
Sappi South Africa
14
Sales Tons -2%year-on-year
Sales +7%year-on-year
EBITDA* +7%year-on-year
* Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page 22 in our Q3 FY19 financial results booklet (available on www.sappi.com) for a definition of special items.
o Lower DWP pricing due to excess VSF capacity
o DWP volumes were lower than prior quarter due to scheduled annual maintenance at Ngodwana and Saiccor
o Lower containerboard volumes - delayed start to the citrus season
o Variable costs 14% higher y-o-y (wood, energy) fixed costs rose with inflation
Maintaina healthybalancesheet
Rationalisedeclining
businesses
Accelerate growth in
higher margin growth
segments
Achievecost
advantages
Improveoperational
and machineefficiencies
Maximiseprocurement
benefits Optimisebusiness
processes
Continuouslybalance
paper supplyand demandin all regions
Wherepossible
convert papermachines tohigher marginbusinesses
Optimiseworkingcapital
Strongcash
generationSmart
financing
Expandpaper
packaginggrades
Enhancespecialised celluloseportfolio
Extractvalue from our
biorefinerystream
Our group strategy
15
At Sappi we do business with integrity and courage; making smart decisions which we execute with speed.Our values are underpinned by an unrelenting focus on and commitment to safety.
Achievecost
advantages
Improveoperational
and machine efficiencies
Maximiseprocurement
benefitsOptimisebusiness
processes
Our group strategy
16
We work to lower fixed and variable costs, increase cost efficiencies and invest for cost advantages. Group efficiency and procurement initiatives
+US$60m target for 2019 Ongoing continuous improvement across all mills. Investigate pulp integration opportunities in US and
EU – Matane acquisition Saiccor expansion will lead to lower variable costs Evaluating P&W capacity in Europe
Matane Mill Acquisition
Matane Mill Somerset Mill
Capacity of 270,000t per annum of aspen
and maple high yield pulp
Mill located in Matane, Quebec
Matane Mill acquisition Supports strategy and 2020 vision through the achievement of cost advantages and
growth in higher margin packaging and speciality paper.
Increase the pulp integration by supplying high yield pulp to our US and European
packaging operations, thereby enabling Sappi to:
Secure supply of a raw material critical to product quality
Reduce input pricing and volatility in profitability
Avoid higher capital cost of internal high yield pulp capacity – Estimated at $210m for 200kt
Purchase price of US$175m represents 3.3X 2018 EBITDA of $53M and 7.0X Sappi’s
2019 estimated EBITDA of $25M
18
Rationalisedeclining
businesses
Continuouslybalance
paper supplyand demand in all regions
Wherepossible
convert paper machines tohigher margin
businesses
Our group strategy
19
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. Downtime taken at mills to lower inventories Progressive transition of Lanaken Mill out of LWC Reduced CWF exposure at Maastricht, Ehingen and
Somerset PM1
Maintaina healthybalancesheet
Optimiseworkingcapital
Strongcash
generationSmart
financing
Our group strategy
20
Maintain leverage below 2x Net debt:EBITDA No new major capex commitments Finance costs US$60-70m/annum going
forward 7 yr €450m bond raised @3.125% - used to
repay €450m 2022 bond
Accelerategrowth in
higher margingrowth
segments
Extractvalue from our
biorefinerystream
Enhancespecialisedcelluloseportfolio
Expandpaper
packaginggrades
Our group strategy
21
We will make investments in existing and adjacent areas with strong potential growth. Debottlenecking of Saiccor, Ngodwana and Cloquet
DWP complete Expansion of Saiccor by 110kt/annum has started Additional packaging at Ngodwana and Tugela Mills Securing additional HW and SW timber supply Biomaterials, bio-chemicals – lignins, sugars Ramp-up of board grades at Maastricht and Somerset
DWP pricing will be under pressure but we expect volumes to continue to grow as we utilize our
expanded capacity
Packaging and speciality end-markets are variable. Despite macro concerns, volumes are
growing; ramp-ups, trials and qualification progressing.
Further weakness in graphic grades could result in additional downtime. We expect significant
industry capacity to shut/convert, and operating rates to rise.
$200m in capex for the remainder of the year, majority at Saiccor and Lanaken
With weak graphic paper markets, DWP price pressure, we expect our results for Q4 will be
below that of the prior year
22
Outlook
Thank you
23
24
Supplementary information
Excluding special items*
25
EBITDA and operating profit
* Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page 22 in our Q3 FY19 financial results booklet (available on www.sappi.com) for a definition of special items.
201 20
8
155
221
172
211
155
224
197
187
118
136 14
5
93
152
105
142
85
148
128
117
48
0
50
100
150
200
250
US$
milli
on
EBITDA Operating profit ex special items
26
Net debt/EBITDA development
* EBITDA is excluding special items.** The covenant Net debt/LTM EBITDA calculation has adjustments and therefore differs from that shown above.
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
1408
1338
1329
1318
1322 1349
1632
1603
1568
1557
1680 17
28
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 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 Q4 17 Q1 18 Q2 18 Q3 18 Q4 18 Q1 19 Q2 19 Q3 19
US$
milli
on
Net debt Net debt/LTM EBITDA**
2.4
4.6
Sappi specialities and packaging papers
27
Global production sites with the ability to switch between graphics and packaging at various sites*
Alfeld Mill (Germany)Containerboard, flex-pack, label,
paperboard, silicone base papers
Carmignano Mill (Italy)Flexible packagingand functional papers
Condino Mill (Italy)Flexible packaging
and functional packaging
Cloquet Mill* (USA)Label papers
Ehingen Mill* (Germany)Containerboard
Maastricht Mill* (The Netherlands)Paperboard
Ngodwana Mill (South Africa)Containerboard
Somerset Mill* (USA)Label paper and flexible packaging paper
Tugela Mill (South Africa)Containerboard
Westbrook Mill (USA)Release papers
Stockstadt Mill* (Germany)Flexible packaging
and functional papers
28
Product Groups and ProductsEU Packaging
and Specialities
Accelerategrowth in
higher margingrowth
segments
Extractvalue from our
biorefinerystream
Enhancespecialisedcelluloseportfolio
Expandpaper
packaginggrades
Packaging and Speciality papers expansion plans
29
Europe Maastricht: complete, ramp-up by 2021
-160k CWF, +150k specialities (FBB) Ehingen: complete
-75k CWF, +60k specialities (WTL) Alfeld: construction to start FY19, complete by Q4 FY20
+10k specialities (Various) Lanaken: enable CWF on PM8, as market develops
North America Somerset: construction done, 3 year ramp up
-150k CWF, +350k specialities (SBS)
30
Sappi Europe
* Sales less operating profit excluding special items divided by tons sold.** Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page 22 in our Q3 FY19 financial results booklet (available on www.sappi.com) for a definition of special items.
Q3 FY19 Q3 FY18 FYTD 19 FYTD 18
Tons sold (‘000) 789 833 2,440 2,502
Sales (EURm) 637 636 1,953 1,824
Price/Ton (EUR) 807 764 800 729
Cost/Ton* (EUR) 785 726 771 689
Operating profit excluding special items** (EURm) 18 31 72 99
Western Europe
31
Coated paper deliveries and prices
0.4
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
Q1
18
Q1
19
CWF Demand MCR Demand CWF 100gsm Sheets LWC 60gsm offset reels
Western Europe shipments including export.Source: Cepifine, Cepiprint and RISI indexed to calendar 1Q 2008.
32
Sappi North America
* Sales less operating profit excluding special items divided by tons sold.** Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page 22 in our Q3 FY19 financial results booklet (available on www.sappi.com) for a definition of special items.
Q3 FY19 Q3 FY18 FYTD 19 FYTD 18
Tons sold (‘000) 320 318 991 1,008
Sales (USDm) 343 339 1,072 1,044
Price/Ton (USD) 1,072 1,066 1,082 1,036
Cost/Ton* (USD) 1,100 1,063 1,072 1,018
Operating profit excluding special items** (USDm) -9 1 10 18
United States of America
33
Coated paper prices and shipments
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
Q1
18
Q1
19
Domestic CWF shipments Domestic CWF purchases RISI price CFS #3 60lb rolls
US industry purchases defined as industry shipments, plus imports, less exports.Source: AF&PA and RISI indexed to calendar Q1 FY08.
34
Sappi South Africa
* Sales less operating profit excluding special items divided by tons sold.** Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page 22 in our Q3 FY19 financial results booklet (available on www.sappi.com) for a definition of special items.
Q3 FY19 Q3 FY18 FYTD 19 FYTD 18
Tons sold (‘000) 375 383 1,189 1,179
Sales (ZARm) 4,418 4,105 14,108 12,509
Price/Ton (ZAR) 11,781 10,718 11,866 10,610
Cost/Ton* (ZAR) 10,459 9,274 9,483 8,538
Operating profit excluding special items** (ZARm) 496 553 2,833 2,443
35
Paper pulp prices*
* Source: FOEX
600
650
700
750
800
850
900
950
1000
1050
1100
500
600
700
800
900
1,000
1,100
1,200
1,300
US$
/ton
NBSK Europe BHKP Europe BHKP China NBSK Europe Euros BHKP Europe Euros
EUR
/ton
36
Dissolving pulp prices*
* Source: CCF group
700
750
800
850
900
950
1,000
1,050
Imp SW DWP Imp HW DWP China origin DWP
US$
/ton
37
Textile fibre prices*
* Source: CCF group.
800
1,200
1,600
2,000
2,400
2,800
Cotton 328 Cotton "A" Index PSF 1.4 D VSF 1.2 D VSF 1.5 D
US$
/ton
Cash flow
38
US$m Q3 FY19 Q3 FY18 FYTD 19 FYTD 18Cash generated from operations 118 141 497 497Movement in working capital 20 33 (147) (85)
Net finance costs paid (15) (21) (40) (42)
Taxation (paid) refund (5) (6) (51) (50)
Dividend paid - - (92) (81)
Cash generated from operating activities 118 147 167 239Cash utilised in investing activities (135) (188) (339) (519)Capital expenditure (135) (188) (336) (395)
Proceeds on disposal of assets 1 1 2 11
Acquisition of subsidiary - - - (132)
Other non-current asset movements (1) (1) (5) (3)
Net cash generated (utilised) (17) (41) (172) (280)
Excluding special items* reconciliation to reported operating profit
39
EBITDA and operating profit
* Refer to page 22 in our Q3 FY19 results booklet (available on www.sappi.com) for a definition of special items.
US$m Q3 FY19 Q3 FY18 FYTD 19 FYTD 18
EBITDA excluding special items* 118 155 502 538Depreciation and amortisation (70) (70) (209) (206)
Operating profit excluding special items* 48 85 293 332Special items* - gains (losses) (2) (1) (7) 22
Plantation price fair value adjustment 1 8 14 30
Acquisition cost - - - (2)
Net restructuring provisions - - - 2
Profit on disposal and written off assets (1) (1) (4) 8
Asset impairments - - (11) -
Asset impairment reversals - 3 8 3
Black Economic Empowerment charge - - - (1)
Fire, flood, storm and other events (2) (11) (14) (18)
Segment operating profit 46 84 286 354
Fibre properties and applications
40
Cellulosic fibre properties helping drive that growth
Source: IHS Global, RISI, Hawkins Wright.
Key strength Qualifies Issue
ApparelHome textilesNonwovens/Technical textiles
Overall value proposition
Applications
Function and feel
Appearance
Sustainability
1762
21
6627
7
5220
28
Cellulosic fibres Cotton Polyester
• On a pure property basis, cellulosic fibres are superior to cotton and differentiated on sustainability.
• Polyester is differentiated on strength/durability versus cotton and cellulosic fibres.
• Natural and attractive, ‘greener’ alternative to cotton
• Natural, functional and well established
• Cheap, durable and versatile
Durability
Absorbency Breathability Softness
Drape Dyeability
Brightness/Lustre
Renewable and biodegradeable
Resource efficiency
41
There is still significant headroom to increase the level of cellulosic fibre blending in most sub-categories
Source: Expert interviews.
POLYESTER
Future Today Gap Today Future Gap Today Future Gap COTTON CELLULOSIC
Apparel
Home textile
Towels 5% 5% 0% 80% 75% -6% 15% 20% +33%
Bedding 45% 55% +22% 45% 40% -11% 1% 2% +100%
Denim 5% 5% 0 95% 95% 0% 0% 0% 0%
Shirts 35% 40% +14% 50% 40% -20% 15% 20% +33%
T-shirts 30% 50% +67% 70% 50% -29% 3% 5% 0%
Dresses 10% 10% 0% 35% 25% -29% 55% 65% +18%
Suits 35% 40% +14% 25% 20% -20% ~1% ~2% +100%
Sportswear 85% 85% 0% 0% 0% 0% 15% 15% 0%
Casual wear 45% 50% +11% 45% 35% -22% 10% 15% +50%
Thank you
42