Q4 FY18 financial results delivering on strategy 15 Nov. 2018 - PowerPoint PPT Presentation

Q4 FY18 financial results delivering on strategy 15 Nov. 2018 2018 Vision 2020 next phase growth intentional evolution Steve Binnie Chief Executive Officer Sappi Limited 1

Forward-looking statements and Regulation G  Forward-looking statements Certain 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, 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 disclosure Certain 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 of certain 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 . 2

Summary 3

Highlights – Q4 2018 Up 1% Up 5% Flat EPS ex-special items EBITDA ex special items Profit for the period US$0.19 US$224m US$107m o Good sales quarter, impacted somewhat by low starting inventories o Higher paper pulp prices offset cost pressures o DWP prices impacted by hedging translation losses o European graphics paper markets weakening 4

Highlights – FY 2018 Up Up Up Up Up 10% 13% 72% 19% 18% Net sales Spec. and Pack. Dividend per share Expansion capex Net Debt US$5.8bn Volumes US$0.17/share US$374m US$1,568m 1,009,000t o 3 major projects concluded during the year – Saiccor, Ngodwana and Somerset o Acquisition of Cham Paper - returns ahead of expectations o Growing dividend in line with policy o Increase in net debt in line with leverage ceiling 5

EBITDA and operating profit Excluding special items* 250 Key ratios Q4 FY16 Q4 FY17 Q4 FY18 224 221 Net debt/LTM EBITDA 200 1.9 1.7 2.1 209 Interest cover 7.3 9.1 11.0 152 148 145 150 EBITDA % 15.6 15.7 14.6 US$ million ROCE % 20.9 20.2 17.0 100 50 0 Q4 FY16 Q4 FY17 Q4 FY18 EBITDA Operating profit * Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page 26 in our Q4 FY18 financial results booklet (available on www.sappi.com) for a definition of special items. 6

EBITDA* bridge Q4 FY17 to Q4 FY18 Sales revenue 340 300 US$ million 260 220 180 140 221 6 125 (89) (40) (4) 5 224 Q4 FY17 EBITDA Sales volume Price & mix Variable & delivery Fixed costs Other Exchange rate Q4 FY18 EBITDA costs Notes: Sept 1. All variances were calculated excluding Sappi Forestry. 2018 2017 2. “Exchange rate” reflects translation and transactional effect on consolidation. Exchange rates: Average rate for the Quarter: US$1 = ZAR 14.0615 13.1761 Average rate for the Quarter: €1 = US$ 1.1626 1.1756 * EBITDA = EBITDA excluding special items 7

Product contribution split – LTM EBITDA excluding special items Operating profit excluding special items Specialised Cellulose 32% 40% Specialities & 42% 52% Packaging Papers Printing Papers 16% 18% * Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page 26 in our Q4 FY18 financial results booklet (available on www.sappi.com) for a definition of special items. Data above excludes treasury operations and insurance captive. 8

Maturity profile Fiscal years 600 544 500 548 EUR450m bond EUR350m bond 376 363 400 US$ million 300 221 US$221m bond 200 84 81 70 100 47 46 29 0 0 2019 2020 2021 2022 2023 2024 2025 2032 Cash Short-term SPH term debt Securitisation SSA 9

Cash flow Dividend per share Net finance costs paid Acquisition of subsidiary and other 17 Taxation paid 15 66 123 11 73 Dividend paid 81 FY16 FY17 FY18 Cash generated by operating activities US$630 m Expansion Capex 167 374 Maintenance Capex 407 374 Expansion Capex 217 86 Cash utilised US$254 million FY16 FY17 FY18 FY19E 10

Capex development 700 600 500 US$ million 400 300 200 100 0 2013 2014 2015 2016 2017 2018 2019E Maintenance Efficiency and expansion 11

Update on projects Q4 FY18  Specialities and Packaging Papers  Specialised Cellulose  Maastricht completed:  Ngodwana: New product trials are testing well, ramp-up Mill now running at planned 250ktpa   to full volumes by 2021  Saiccor:  Ehingen completed: production issues are behind us, now  WTL upgrade, on time, within budget operating at full capacity (780ktpa)  EIA approval given – construction started  Somerset completed:   Graphics Legacy products qualified at lower costs  Currently optimizing new products   Lanaken: New product trials showing excellent quality  PM8 project to impact Q3 2019  Ramp-up delayed due to late startup  Allows carousel from Maastricht   Gratkorn: PM9 upgrade  Impact in Q1 and Q2  12

Divisional overview 13

Global P&W paper market trends  Supply and demand  Demand softening globally  Capacity closures/conversions keep operating rates largely in balance – mostly to containerboard or testliner  Substitution and conversions benefitted coated mechanical grades  Selling prices and input costs  Paper prices rising, tracking pulp prices with a lag  EU and NA increases announced for October – price elasticity needs to be carefully managed  Strategy  Focus on costs to maintain margins  Manage operating rates through conversions, market share, flexibility of machines  Increase pulp integration 14

Global speciality & packaging paper market trends  Supply and demand  Demand for our product range continues to grow between 3% to 6%, some recent weakness  Environmental concerns spurring legislation incentivising the use of more paper-based packaging, particularly in EU.  Selling prices and input costs  Sales prices expected to increase upon contract renewals, may not fully recover cost inflation  Softwood and hardwood fiber costs continue to rise  Strategy  More M&A in the industry  Ramp-up volumes from conversions, penetrate new markets  Maximise opportunities in paper-for-plastics shift  Commercialize new products 15