Q2 FY16 financial results - cdn-s3.sappi.com · Q2 FY14 Q2 FY15 Q2 FY16 US$ million EBITDA...

9 May 2016

Chief Executive Officer

Steve Binnie

Sappi Limited

Q2 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 to statements 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 and future trends and which do not relate to historical matters, identify forward looking statements. In addition, this document 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. You should 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 actual results, 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 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

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

Q2 FY16

5

EBITDA and operating profit

171

170

195

95

104

133

0

50

100

150

200

250

Q2 FY14 Q2 FY15 Q2 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 Q2 FY16 results booklet (available on www.sappi.com) for a definition of special items.

Excluding special items*

Q2 FY14

Q2 FY15

Q2 FY16

Net Debt/ LTM EBITDA 4.0 2.9 2.4

Interest Cover 3.1 3.7 6.5

EBITDA % 10.9 12.7 15.1

ROCE % 11.0 13.5 19.3

Key ratios

0

40

80

120

160

200

240

280

320

170 (1) 82 24 (46) (34) 195

Q2 FY15 EBITDA Sales volume Price & mix Variable & deliverycosts

Fixed costs Exchange rate Q2 FY16 EBITDA

6

EBITDA Bridge*Q2 FY15 to Q2 FY16

Sales revenue

o All variances calculated excluding Sappi Forestry.

o EBITDA above excludes special items*

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


7

Product contribution split - LTM

Specialised cellulose

46%

Paper54%

EBITDA excluding special items*

Specialised cellulose

63%

Paper37%

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 Q2 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

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

US

$ m

illio

n

Net Debt Net debt/LTM EBITDA**

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

457

65

513

503

221

49

32

74

322

0

100

200

300

400

500

600

2016 2017 2018 2019 2020 2021 2022 2032

US

$ m

illio

n

Cash Short-term SPH term debt SSA Securitisation

9

Maturity profileFiscal years

Includes US$400m bond

US$350m bondUS$221m bond

EUR450m bond

350

10

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

11

Capital and investment spend

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 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 low

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

Improved performance, volumes and prices better than last year. CM markets still

challenged. Market share gains offset overall declines in coated paper.

Speciality paper volumes up 19% - market average growth of 1%-5%.

Variable and delivery costs down 5% y-o-y

14

Sappi Europe

0%

2%

4%

6%

8%

10%

12%

0

20

40

60

80

100

Q2 FY13 Q2 FY14 Q2 FY15 Q2 FY16

US

$ m

illio

n

EBITDA* EBITDA Margin*

* EBITDA and EBITDA margin shown 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 Q2 FY16 results booklet (available on www.sappi.com) for a definition of special items.** Source: RISI

Flexible Packaging and Label Papers

-6%

-5%

-4%

-3%

-2%

-1%

0%16 v 15 17 v 16

CWF CM

W. Europe Apparent Consumption Forecast**

15

Sappi North America

0%

2%

4%

6%

8%

10%

12%

0

10

20

30

40

50

60

Q2 FY13 Q2 FY14 Q2 FY15 Q2 FY16

US

$ m

illio

n


* EBITDA and EBITDA margin shown 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 Q2 FY16 results booklet (available on www.sappi.com) for a definition of special items.** Source: AF&PA

Continued improvement - higher paper volumes, lower costs

HW web good demand

Pricing for sheeted products and lightweight web under pressure from imports

DWP volumes - supplemented prior quarter drought impacted volumes from Saiccor

Release business volumes 4% higher than last year

-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, high Chinese VSF operating rates

Selling prices and input costs Spot prices for commodity grade DWP fell during the quarter but

have since recovered somewhat

Strategy Maintain low-cost position Continue working with customers supporting common growth Investigate adjacent DWP grades

17

Sappi Southern Africa

0%

5%

10%

15%

20%

25%

30%

35%

0

20

40

60

80

100

Q2 FY13 Q2 FY14 Q2 FY15 Q2 FY16

US

$ m

illio

n


* EBITDA and EBITDA margin shown 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 Q2 FY16 results booklet (available on www.sappi.com) for a definition of special items.** Source: CCF

Improved margins on higher prices and impact of weaker Rand, notwithstanding the

Ngodwana and Saiccor shuts (usually Q3)

DWP volumes were higher than both comparative periods, higher selling prices from Q1.

Mill sales during the prior quarter, as well as the later onset of the citrus picking season

negatively impacted paper sales volumes.

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

780

800

820

840

860

880

900

920

Sep

-14

Oct

-14

Nov

-14

Dec

-14

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

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

saving 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 Restructured South African paper business

in 2015 Disposed of SA recycled paper in South

Africa Q1 2016 Transition CWF capacity to niche speciality

grades in EU and NA

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 debottlenecking DWP and packaging in

SA - ~10% increase in volumes Energy investments in South Africa Explore growth opportunities in Specialty

Packaging Securing additional HW timber supply in

SA

21

Focus areasGrow through moderate investments

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

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 – 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

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 improve with reasonable operating rates and

lower variable costs. Speciality Packaging showing strong growth.

26

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 increased taxes.

Expect further net debt declines toward our target of less than 2-times net debt

to EBITDA.

Thank you –

27

Supplementary information

28

29

EBITDA and operating profit14

7

171

140

200

145

170

109

201

175

195

60

95

67

124

74

104

43

136

112

133

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

US

$ m

illio

n

EBITDA Operating profit ex-items


Excluding 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®

30

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

31

32

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

Western Europe

Coated paper deliveries and prices

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

Q1

2008

= 1

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

33

Sappi Europe

Q2 FY16 Q2 FY15 1H FY16 1H FY15Tons sold (‘000) 834 828 1,670 1,603Sales (EURm) 604 590 1,205 1,137

Price/Ton (EUR) 724 713 722 709Cost/Ton* (EUR) 685 684 685 687

Operating profit excluding special items** (EURm) 33 24 62 36

* 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 Q2 FY16 results booklet (available on www.sappi.com) for a definition of special items.

34

* 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

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

Q1

FY08

= 1

35

Sappi North America

Q2 FY16 Q2 FY15 1H FY16 1H FY15Tons sold (‘000) 331 321 661 654Sales (US$m) 339 342 682 695

Price/Ton (US$) 1,024 1,065 1,032 1,063Cost/Ton* (US$) 985 1,044 992 1,058

Operating profit excluding special items** (US$m) 13 7 26 3


36

• Source: FOEX, CCF group

Pulp prices*

600

700

800

900

1 000

Apr-13 Apr-14 Apr-15 Apr-16

US

$/to

n

NBSK Europe BHKP Europe Commodity DWP

37

Textile Fibre Prices

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

Jul-1

4

Aug

-14

Sep

-14

Oct

-14

Nov

-14

Dec

-14

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

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

38

Sappi South Africa

Q2 FY16 Q2 FY15 1H FY16 1H FY15Tons sold (‘000) 404 424 790 850Sales (ZARm) 4,376 3,653 8,171 7,297

Price/Ton (ZAR) 10,832 8,616 10,343 8,585Cost/Ton* (ZAR) 7,725 6,795 7,553 6,846

Operating profit excluding special items** (ZARm) 1,255 772 2,204 1,478


Excluding Sappi Forests

39

Cash flowUS$m Q2 16 Q2 15 1H 16 1H 15Cash generated from operations 187 136 358 273Movement 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 66Cash utilised in investing activities (49) (38) (47) (105)Capital expenditure (45) (46) (85) (114)

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

Other movements (1) 8 - 9

Net cash generated (utilised) 90 82 109 (39)

40

EBITDA and operating profit

US$m Q2 16 Q2 15 1H 16 1H 15

EBITDA excluding special items* 195 170 370 315Depreciation and amortisation (62) (66) (125) (137)

Operating profit excluding special items* 133 104 245 178

Special Items* - gains (losses) 22 68 33 63

Plantation price fair value adjustment 26 18 28 19

Net restructuring provisions (1) (2) (4) (3)

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

Employee benefit liability settlement - 57 - 57

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

Fire, flood, storm and other events (3) (4) (6) (9)

Segment operating profit 155 172 278 241

* Refer to page 22 in our Q2 FY16 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 FY16 financial results - cdn-s3.sappi.com · Q2 FY14 Q2 FY15 Q2 FY16 US$ million EBITDA...

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Transcript of Q2 FY16 financial results - cdn-s3.sappi.com · Q2 FY14 Q2 FY15 Q2 FY16 US$ million EBITDA...