Post on 07-Jun-2020
transcript
6 February 2019
Chief Executive Officer
Steve Binnie
Sappi Limited
Q1 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 – Q1 2019
3
EBITDA* +15%year-on-year
Net Profit +29%year-on-year
EPS* +14%year-on-year
Net debt +15%year-on-year
• Improved performance in difficult operating climate
• Strong growth in packaging volumes
• Net debt increased due to Cham acquisition and higher capital expenditure
Key ratios Q1 FY17 Q1 FY18 Q1 FY19
Net debt/LTM EBITDA 1.7 1.8 2.0
Interest cover 7.7 9.9 10.9
EBITDA % 15.4 12.9 13.9
ROCE % 19.5 14.1 14.7
* Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page 18 in our Q1 FY19 financial results booklet (available on www.sappi.com) for a definition of special items.
Excluding special items*
100
140
180
220
260
300
172 (7) 131 (84) (11) (5) 1 197
Q1 FY18 EBITDA Sales volume Price & mix Variable & deliverycosts
Fixed costs Other Exchange rate Q1 FY19 EBITDA
EBITDA* reconciliationQ1 FY18 to Q1 FY19
4
* EBITDA = EBITDA excluding special items
Sales revenue
US$
milli
on
Notes:
1. All variances were calculated excluding Sappi Forestry.
2. “Currency conversion” reflects translation and transactional effect on consolidation.
2018 2017Exchange rates:Average rate for the Quarter: US$1 = ZAR 14.3127 13.6220Average rate for the Quarter: €1 = US$ 1.1409 1.1778
Dec
Product contribution split – LTM
5
* Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page 18 in our Q1 FY19 financial results booklet (available on www.sappi.com) for a definition of special items. Data above excludes treasury operations and insurance captive.
41%
18%
41%
SpecialisedCellulosePackaging &Speciality PapersPrinting Papers
53%
15%
32%
EBITDA excluding special items Operating profit excluding special items
Maturity profileFiscal years
6
350
8027 47 45
536
442
69
0
221
376
79
0
100
200
300
400
500
600
2019 2020 2021 2022 2023 2024 2025 2032
US$
milli
on
Cash Short-term SPH term debt Securitisation SSA
EUR450m bond
EUR350m bond
US$221m bond
Capex development
7
0
100
200
300
400
500
600
700
2013 2014 2015 2016 2017 2018 2019E
US$
milli
on
Maintenance Efficiency and expansion
8
Divisional overview
Global P&W paper market trends
9
Supply and demand Demand softening globally Capacity reductions expected in US and Europe
Selling prices and input costs Pulp prices falling from historical highs on weak Chinese demand – declines differ by
geography Paper prices stable
Strategy Focus on costs to maintain margins Manage operating rates through conversions, market share, flexibility of machines Increase pulp integration over time
Global speciality & packaging paper market trends
10
Supply and demand More capacity entering the space – mostly containerboard Brand owners pushing for paper based packaging solutions Short term pressure on demand in consumer packaging and self-adhesives
Selling prices and input costs Most sales prices rose into 2019, though insufficient to counter cost inflation Pulp prices have begun to decline from their historical highs
Strategy More M&A in the industry Ramp-up volumes from conversions, grow into new markets Maximise opportunities in paper-for-plastics shift
Global DWP market trends
11
Supply and demand Continued DWP and VSF capacity growth – both integrated and market 80% of swing capacity moved to DWP as paper pulp demand in China dried up
Selling prices and input costs DWP selling prices are down as VSF prices decline on excess capacity. Weak RMB places further pressure on US$ input costs of VSF producers
Strategy Grow in-step with the market (debottlenecked volumes 2018/19, future plans for Saiccor) Evaluate external opportunities which will enable a substantial increase in volumes Align growth with leading VSF customers – environmental and social performance key
Sappi Europe
12
Sales Tons -1.6%year-on-year
Sales +9%year-on-year
EBITDA* -2.9%year-on-year
o Printing and Writing volumes down 7%, while specialities and packaging volumes up 50% (4% like-for-like) from last year
o Packaging and specialities average net selling prices were 17% (10% like-for-like) higher as a result of mix and price increases
o Fixed costs 12% higher due to increased headcount from Cham
o Variable costs 17% higher primarily due to purchased paper pulp
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 FY19 financial results booklet (available on www.sappi.com) for a definition of special items.
Sappi North America
13
Sales Tons -6%year-on-year
Sales +3%year-on-year
EBITDA* +61%year-on-year
o Higher prices for most products and higher DWP volumes lifted profitability
o Coated paper markets weakened during the quarter, however we increased volumes from European mills
o Packaging and specialities volumes up 68%, paperboard volumes and prices set to improve
o Variable costs were higher due to purchased paper pulps and optimization of PM1
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 FY19 financial results booklet (available on www.sappi.com) for a definition of special items.
Sappi South Africa
14
Sales Tons +3%year-on-year
Sales +10%year-on-year
EBITDA* +20%year-on-year
o Strong improvement in performance due to increases in volumes and selling prices
o DWP volumes were lower sequentially due to low inventories, but higher year-on-year
o Volumes and prices were up for our packaging grades. Price rose for our paper products, offsetting lower volumes
o Fixed costs rose in-line with inflation.
o Variable costs were higher due to the weaker Rand, and higher US$ prices for coal, wood and paper pulps
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 FY19 financial results booklet (available on www.sappi.com) for a definition of special items.
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: +US$80m achieved in 2018 Ongoing continuous improvement across all mills. Investigate pulp integration opportunities in US and
EU Saiccor expansion will lead to lower variable costs €30m upgrade to Gratkorn mill
Rationalisedeclining
businesses
Continuouslybalance
paper supplyand demand in all regions
Wherepossible
convert paper machines tohigher margin
businesses
Our group strategy
17
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 Mill out of LWC. Reduced CWF exposure at Maastricht Mill, Ehingen
Mill and Somerset Mill PM1.
Maintaina healthybalancesheet
Optimiseworkingcapital
Strongcash
generationSmart
financing
Our group strategy
18
Maintain leverage below 2x Net debt:EBITDA Finance costs US$60-70m/annum going
forward. Renewal of RCF Lower spread (165bp), cost and commitment fee Additional flexibility for acquisitions and disposals
Will monitor bond markets for opportunities to refinance at lower cost
Accelerategrowth in
higher margingrowth
segments
Extractvalue from our
biorefinerystream
Enhancespecialisedcelluloseportfolio
Expandpaper
packaginggrades
Our group strategy
19
We will make investments in existing and adjacent areas with strong potential growth. Debottlenecking of Saiccor and Ngodwana DWP
complete, Cloquet in 2019. Additional packaging at Ngodwana and Tugela Mills. Securing additional HW timber supply. Biomaterials, bio-chemicals – lignins, sugars. Xylitol and Furfural demo plant to be built at Ngodwana Expansion of Saiccor by 110kt/annum has started Ramp-up of board grades at Maastricht and Somerset
We expect DWP sales volumes to increase this year following the completion of debottlenecking
of Saiccor and Ngodwana.
Variable market conditions for speciality papers. Packaging and paperboard markets remain
strong. Increased volumes from Somerset and Maastricht forthcoming.
Graphic paper markets have been weak, short term profitability will be negatively impacted if
demand continues to be as weak as it has been recently.
2019 capex expected to be approximately $590m – majority at Saiccor, Lanaken and Gratkorn
Given weak graphic paper markets and elevated pulp prices, we expect EBITDA in Q2 to be
slightly below that of last year. FY 2019 expected to be higher than that of last year.
20
Outlook
Thank you
21
22
Supplementary information
Excluding special items*
23
EBITDA and operating profit
* Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page 18 in our Q4 FY19 financial results booklet (available on www.sappi.com) for a definition of special items.
175
195
160
209
201 20
8
155
221
172
211
155
224
197
112
133
97
145
136 14
5
93
152
105
142
85
148
128
0
50
100
150
200
250
US$
milli
on
EBITDA Operating profit ex special items
24
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
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
US$
milli
on
Net debt Net debt/LTM EBITDA**
2.0
4.6
Sappi specialities and packaging papers
25
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)Silicone base papers
Stockstadt Mill* (Germany)Flexible packaging
and functional papers
Accelerategrowth in
higher margingrowth
segments
Extractvalue from our
biorefinerystream
Enhancespecialisedcelluloseportfolio
Expandpaper
packaginggrades
Speciality and packaging papers expansion plans
26
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)
Accelerategrowth in
higher margingrowth
segments
Extractvalue from our
biorefinerystream
Enhancespecialisedcelluloseportfolio
Expandpaper
packaginggrades
DWP expansions
27
Debottlenecking Saiccor – 10kt complete April 2018 Ngodwana – 50kt complete September 2018 Cloquet – 30kt complete Q3 2019
additional 70kt swing capacity available
Expansion Saiccor – 110kt ≈Q3 2020, construction has commenced
External Paper pulp prices impacting valuations and returns
28
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 18 in our Q1 FY19 financial results booklet (available on www.sappi.com) for a definition of special items.
Q1 FY19 Q4 FY18 Q1 FY18Tons sold (‘000) 809 864 822Sales (EURm) 642 671 571
Price/Ton (EUR) 794 777 695Cost/Ton* (EUR) 756 733 657
Operating profit excluding special items** (EURm) 30 38 31
Western Europe
29
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
Q1
18
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.
30
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 18 in our Q1 FY19 financial results booklet (available on www.sappi.com) for a definition of special items.
Q1 FY19 Q4 FY18 Q1 FY18Tons sold (‘000) 321 363 343Sales (USDm) 351 388 342
Price/Ton (USD) 1,093 1,069 997Cost/Ton* (USD) 1,065 983 1,000
Operating profit excluding special items** (USDm) 9 31 (1)
United States of America
31
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
Domestic CWF shipments Domestic CWF purchases RISI price CFS #3 60lb rollsUS industry purchases defined as industry shipments, plus imports, less exports.Source: AF&PA and RISI indexed to calendar Q1 FY08.
32
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 18 in our Q1 FY19 financial results booklet (available on www.sappi.com) for a definition of special items.
Q1 FY19 Q4 FY18 Q1 FY18Tons sold (‘000) 396 441 383Sales (ZARm) 4,709 4,824 4,073
Price/Ton (ZAR) 11,891 10,939 10,634Cost/Ton* (ZAR) 8,818 8,488 8,180
Operating profit excluding special items** (ZARm) 1,217 1,081 940
33
Pulp prices*
* Source: FOEX, CCF group.
600
700
800
900
1,000
1,100
1,200
1,300
US$
/ton
NBSK Europe BHKP Europe Commodity DWP Cotton linter pulp
34
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
35
US$m Q1 FY19 Q4 FY18 Q1 FY18Cash generated from operations 197 212 162Movement in working capital (87) 6 (83)
Net finance costs paid (5) (24) (6)
Taxation (paid) (3) (23) 6
Cash generated from operating activities 102 171 79Cash utilised in investing activities (109) (145) (93)Capital expenditure (106) (146) (88)
Other movements (3) 1 (5)
Net cash generated (utilised) (7) 26 (14)
Excluding special items reconciliation to reported operating profit
36
EBITDA and operating profit
* Refer to page 18 in our Q1 FY19 results booklet (available on www.sappi.com) for a definition of special items.
US$m Q1 FY19 Q4 FY18 Q1 FY18
EBITDA excluding special items* 197 224 172Depreciation and amortisation (69) (76) (67)
Operating profit excluding special items* 128 148 105
Special items* - gains (losses) (5) (13) 11
Plantation price fair value adjustment 3 (3) 16
Net restructuring provisions - (3) -
Profit on disposal and written off assets - (4) -
Fire, flood, storm and other events (8) (3) (5)
Segment operating profit 123 135 116
Fibre properties and applications
37
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
Dissolving wood pulp market
38
Viscose-grade DWP demand growth
Source: Sappi; Hawkins Wright; RISI.
OtherEurope Americas China
0.2
6.1
0.6
0.6
1.7
3.7
1.9
7.5
Market size 2017 Mtpa
CAGR 2010-17%
Viscose
Cellulose ethers and MCC
Cellulose acetate tow
Nitro-cellulose and other
Products (examples)
7.5 ~6-7Total
Rayon Grade
High-alpha/Speciality
DWP gradeDemand geography
Applications (examples)• Textiles (viscose)• Non-wovens• Cellophane• Sausage skins
• Construction• Food additives• Medicine fillers• Cosmetics
• Cigarette filters• Paints and coatings• Films• Plastics
• Explosives• Inks• Lacquers• Nail polish
39
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%
Product Segments
40
Q1 Q2 Q3 Q4 FY18 Q1 19Tons sold (‘000) 1,063 1,074 968 1,045 4,150 977Sales 877 945 851 927 3,600 867EBITDA 69 90 57 101 317 76
margin 8% 10% 7% 11% 9% 9%
Q1 Q2 Q3 Q4 FY18 Q1 19Tons sold (‘000) 287 302 277 332 1,198 297Sales 241 279 245 278 1,043 263EBITDA 78 83 60 88 306 91
margin 32% 30% 25% 32% 29% 35%
Q1 Q2 Q3 Q4 FY18 Q1 19Tons sold (‘000) 198 231 289 291 1,009 252Sales 196 254 327 310 1,087 282EBITDA 27 39 33 40 139 30
margin 14% 15% 10% 13% 13% 11%
Packaging & Speciality Papers
Printing & Writing Papers
Dissolving Wood Pulp
Thank you
41