Q1 FY17 financial results - Sappi 2017 Results presentation.pdf · Q1 FY14 Q1 FY15 Q1 FY16 Q1 FY17...

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8 February 2017 Chief Executive Officer Steve Binnie Sappi Limited Q1 FY17 financial results

Transcript of Q1 FY17 financial results - Sappi 2017 Results presentation.pdf · Q1 FY14 Q1 FY15 Q1 FY16 Q1 FY17...

8 February 2017

Chief Executive Officer

Steve Binnie

Sappi Limited

Q1 FY17 financial results

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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

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4

Highlights

EBITDA ex-special items US$201m (Q1 FY16 US$175m)

Profit for the period US$90m (Q1 FY16 US$75m)

EPS ex-special items 16 US cents (Q1 FY16 13 US cents)

Net debt US$1,338m, down US$396m year-on-year

Q1 FY17

5

EBITDA and operating profit

145

175

201

74

112

136

0

50

100

150

200

250

Q1 FY15 Q1 FY16 Q1 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 18 in our Q1 FY17 results booklet (available on www.sappi.com) for a definition of special items.

Excluding special items*

Q1 FY15

Q1 FY16

Q1 FY17

Net Debt/ LTM EBITDA 3.1 2.6 1.7

Interest Cover 3.8 5.1 7.7

EBITDA % 10.5 13.6 15.4

ROCE % 9.7 16.2 19.5

Key ratios

3

-9

175

10

7

21

201

140

150

160

170

180

190

200

210

220

EBITDAQ1 FY16

Sales Volume Price & Mix Variable & DeliveryCosts

Exchange Rate Fixed Costs EBITDAQ1 FY17

6

EBITDA Bridge*Q1 FY16 to Q1 FY17

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.

* Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page 18 in our Q1 FY17 results booklet (available on www.sappi.com) for a definition of special items.

US

D m

illio

n

7

Product contribution split - LTM

Specialised cellulose

47%

Paper53%

EBITDA excluding special items*

Specialised cellulose

62%Paper38%

Operating profit excluding special items

* Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page 18 in our Q1 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

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

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

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

681

62

486 473

368

221307

3683

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 2017F 2018E 2019E

US

$m

Maintenance Efficiency & Expansion

11

Divisional overviews

12

Global paper market trends

Supply and demand Advertising spend continues to move away from printed media Industry closures/conversions required – CM & SC closures announced Speciality packaging paper demand continues to grow 1%-5%

Selling prices and input costs Selling prices have stabilised after declining for past year Most variable costs still low, pulp costs rising.

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

Improved performance from volumes, cost savings, and the additional week.

Speciality paper volumes up 26%, prices were stable.

All major variable costs categories were down with the exception of latex. Prices for

softwood pulp and energy started rising during quarter.

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 18 in our Q1 FY17 results booklet (available on www.sappi.com) for a definition of special items.

Flexible Packaging and Label Papers

40

50

60

70

80

Q1 16 Q2 16 Q3 16 Q4 16 Q1 17

Speciality Packaging Volumes

‘000

tons

0%

2%

4%

6%

8%

10%

12%

14%

0

20

40

60

80

100

Q1 FY14 Q1 FY15 Q1 FY16 Q1 FY17

US

$ m

illio

n

EBITDA* EBITDA Margin*

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Sappi North America

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

0

10

20

30

40

Q1 FY14 Q1 FY15 Q1 FY16 Q1 FY17

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 18 in our Q1 FY17 results booklet (available on www.sappi.com) for a definition of special items.** Source: RISI – delivered to US ***Source: CCF

Weaker year-on-year performance due to lower coated paper pricing, offset by strong DWP

volumes and prices.

Cloquet Mill optimised production to benefit from BHK and DWP pricing spread.

Release business continues to deal with weak conditions in Chinese garment industry

Ongoing procurement and efficiency initiatives along with lower market prices for wood and

paper pulp led to lower average variable costs for the quarter.

775

800

825

850

875

900

925

950

975

1000

Jul-1

5

Oct

-15

Jan-

16

Apr

-16

Jul-1

6

Oct

-16

Jan-

17

N&S BHK** Comm DWP***

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Global DWP market trends

Supply and demand Continued strong demand from new viscose capacity Constrained Cotton Linter Pulp supply – tightening DWP market New DWP capacity has been delayed

Selling prices and input costs Spot pricing peaked in October, declining through to January Recent spot price increases alongside cotton Chemical costs rising, fibre steady

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 Investigate adjacent end-uses

16

Sappi Southern Africa

0%

5%

10%

15%

20%

25%

30%

35%

40%

0

20

40

60

80

100

120

Q1 FY14 Q1 FY15 Q1 FY16 Q1 FY17

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 18 in our Q1 FY17 results booklet (available on www.sappi.com) for a definition of special items. ** Source: CCF

Enhanced year-on-year performance due to higher prices for DWP which more than offset

increased variable costs and the stronger ZAR/US$ exchange rate.

Tube leaks at Saiccor during the quarter, operations stabilised, to be remedied in March

Lower than expected demand for containerboard and tissue papers, outlook is positive

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

775

800

825

850

875

900

925

950

975

1000

Jan-

15

Apr

-15

Jul-1

5

Oct

-15

Jan-

16

Apr

-16

July

-16

Oct

-16

Jan-

17

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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

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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

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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

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Growth through moderate investments

0%

5%

10%

15%

20%

25%

2013* 2014* 2015 2016 Q1 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

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Growth through moderate investments

Investing in speciality packaging businesses in Europe and North America

• $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

• $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

Paperboard MarketContainerboard Boxboard

Corrugated Board

Linerboard incl. WTL

Folding Boxboard

Solid Unbleached Board

White Lined Chipboard

Solid Bleached Sulfate FBB

SUB in Europe, SUS in NA

WLC in Europe, Coated Recycled Board (CRB) in NA

SBB in Europe, SBS in NA

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Mill Summary – Sappi Europe

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Alfeld: heavy/light weight packaging, silicone base papers and barrier papersMaastricht: heavy weight packaging, barrier boards and board weight graphics (=>300 gsm)Ehingen: coated woodfree and white top liner

Specialities

Graphics

TodayAlfeld Ehingen Gratkorn Kirkniemi Lanaken PM7 Lanaken PM8 Maastricht Stockstadt

HW PackagingLW PackagingHW GraphicsMW GraphicsLW GraphicsUCWFMechanical

By 2020Alfeld Ehingen Gratkorn Kirkniemi Lanaken PM7 Lanaken PM8 Maastricht Stockstadt

HW PackagingLW PackagingHW GraphicsMW GraphicsLW GraphicsUCWFMechanical

US$400m 2017 bonds callable in April Refinancing and debt reduction leads to

lower finance cost and EPS growth

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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

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Focus areasAccelerate growth in adjacent businesses from a strong base

Outlook

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Outlook

DWP demand remains favourable; pricing recovering in 2nd quarter.

Demand for graphic paper remains weak, prices have stabilised – further gains

from efficiency and procurement programs.

FY17 capex circa US$350m aimed at speciality packaging projects in EU & NA

as well as debottlenecking DWP production at Saiccor and Ngodwana.

Based on current market conditions, we expect Q2 operating performance to be

in-line with that of Q2 2016. Further ZAR strength could result in a weaker

performance.

We expect to further reduce net debt and repay US$400m 2017 bonds.

Thank you –

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Supplementary information

30

31

EBITDA and operating profit

145 17

0

109

201

175 19

5

160

209

201

74

104

43

136

112 13

3

97

145

136

0

50

100

150

200

250

US$

mill

ion

EBITDA Operating profit ex-items

* Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page 18 in our Q1 FY17 results booklet (available on www.sappi.com) for a definition of special items.

Excluding special items*

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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

CWF Demand MCR Demand CWF 100gsm Sheets LWC 60gsm offset reels

33

Sappi Europe

Q1 FY17 Q4 FY16 Q1 FY16

Tons sold (‘000) 867 822 836

Sales (EURm) 602 579 601

Price/Ton (EUR) 694 704 719

Cost/Ton* (EUR) 648 667 684

Operating profit excluding special items** (EURm) 40 31 29

* 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 18 in our Q1 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®

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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

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36

• 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

Domestic CWF Shipments Doemstic CWF Purchases RISI Price CFS #3 60 lb rolls

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Sappi North America

Q1 FY17 Q4 FY16 Q1 FY16

Tons sold (‘000) 353 363 330

Sales (US$m) 354 360 343

Price/Ton (US$) 1,003 992 1,039

Cost/Ton* (US$) 980 923 1,000

Operating profit excluding special items** (US$m) 8 25 13

* 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 18 in our Q1 FY17 results booklet (available on www.sappi.com) for a definition of special items.

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• Source: FOEX, CCF group

Pulp prices*

600

700

800

900

1 000

US

$/to

n

NBSK Europe BHKP Europe Commodity DWP

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Textile Fibre Prices

800

1 200

1 600

2 000

2 400

2 800

Jan-

16

Feb-

16

Mar

-16

Apr

-16

May

-16

Jun-

16

Jul-1

6

Aug

-16

Sep

-16

Oct

-16

Nov

-16

Dec

-16

Jan-

17

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

40

Sappi South Africa

Q1 FY17 Q4 FY16 Q1 FY16

Tons sold (‘000) 364 429 386

Sales (ZARm) 4,022 4,532 3,794

Price/Ton (ZAR) 11,049 10,564 9,829

Cost/Ton* (ZAR) 7,838 7,636 7,370

Operating profit excluding special items** (ZARm) 1,169 1,256 949

* 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 18 in our Q1 FY17 results booklet (available on www.sappi.com) for a definition of special items.

Excluding Sappi Forests

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Cash flow

US$m Q1 FY17 Q4 FY16 Q1 FY16Cash generated from operations 202 191 171Movement in working capital (97) 70 (100)

Net finance costs paid (17) (4) (36)

Taxation paid (34) (2) (18)

Cash generated from operating activities 54 255 17Cash utilised in investing activities (37) (87) 2Capital expenditure (37) (97) (40)

Net proceeds on disposal of assets 2 5 41

Other movements (2) 5 1

Net cash generated (utilised) 17 168 19

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EBITDA and Operating Profit

US$m Q1 FY17 Q4 FY16 Q1 FY16

EBITDA excluding special items* 201 209 175Depreciation and amortisation (65) (64) (63)

Operating profit excluding special items* 136 145 112

Special Items* - gains (losses) 7 25 11

Plantation price fair value adjustment 11 24 2

Net restructuring provisions - - (3)

Profit on disposal of asset held for sale andother assets - (1) 15

Asset Impairment - (2) -

Employee benefit liability settlement - 8 -

Fire, flood, storm and other events (4) (4) (3)

Segment operating profit 143 170 123

* Refer to page 18 in our Q1 FY17 results booklet (available on www.sappi.com) for a definition of special items.

Excluding special items reconciliation to reported operating profit

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Thank you