Q4 FY19 financial results - sappi-reports.co.za · * Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page

14 Nov 2019

Chief Executive Officer

Steve Binnie

Sappi Limited

Q4 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.

https://www.sappi.com/quarterly-reports

Highlights – FY 2019

3

EBITDA* $687m

Profit for the periodUS$211 million

EPS* 44 US cents

o Graphic paper markets are weak – requiring 268,000t of downtime in the year

o Increased DWP sales post debottlenecking projects

o Packaging and speciality volumes increase 12% y-o-y as machines ramp-up

o Matane acquisition

* Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page 26 in our Q4 FY19 financial results booklet (available on www.sappi.com) for a definition of special items.

Excluding special items*

http://www.sappi.com/

Highlights – Q4 2019

4

EBITDA* $185m

Strong cash generation of US$173m

Profit for the periodUS$50 million

EPS* 10 US cents

o Lower EBITDA in DWP and graphics business, offset somewhat by increased profitability from packaging and speciality

o Commercial downtime of ~94,000t graphic paper• ~ US$25m EBITDA impact

o DWP pricing follows VSF lower – weak global textile markets

Key ratios Q4 FY17 Q4 FY18 Q4 FY19

Net debt/LTM EBITDA 1.7 2.1 2.2

Interest cover 9.1 11.0 9.3

EBITDA % 15.7 14.6 12.7

ROCE % 20.2 17.0 12.1




100

150

200

250

224 (10) (25) 15 (15) (3) (1) 185

Q4 FY18 EBITDA Sales volume Price & mix Variable & deliverycosts

Fixed costs Other Exchange rate Q4 FY19 EBITDA

Sales revenue

EBITDA* reconciliation

5

Q4 FY18 to Q4 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

2019 2018Exchange rates:Average rate for the Quarter: US$1 = ZAR 14.6831 14.0615Average rate for the Quarter: €1 = US$ 1.1123 1.1626

Sept

Product contribution split – LTM

6

* Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page 26 in our Q4 FY19 financial results booklet (available on www.sappi.com) for a definition of special items. Data above excludes treasury operations and insurance captive.

45%

19%

37%Dissolving WoodPulpPackaging &Speciality PapersPrinting & WritingPapers

62%13%

25%

EBITDA excluding special items Operating profit excluding special items


7

Graphics volume/EBITDA margin development

0%

2%

4%

6%

8%

10%

12%

600

700

800

900

1,000

1,100

1,200

Q117 Q217 Q317 Q417 Q1 18 Q218 Q318 Q418 Q119 Q219 Q319 Q419

Graphics volume Graphics margin

8

Pack/Spec volume/EBITDA margin development

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

100

150

200

250

300

350

Q117 Q217 Q317 Q417 Q1 18 Q218 Q318 Q418 Q119 Q219 Q319 Q419

Pack/Spec volume Pack/Spec margin

9

DWP volume/EBITDA margin development

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

100

150

200

250

300

350

400

Q1

17

Q2

17

Q3

17

Q4

17

Q1

18

Q2

18

Q3

18

Q4

18

Q1

19

Q2

19

Q3

19

Q4

19

DWP volume EBITDA margin

Maturity profileFiscal years

10

393

6442 42 20

403

86

492

221

366

76 99

0

100

200

300

400

500

600

2020 2021 2022 2023 2024 2025 2026 2027 2032

US$

milli

on

Cash Short-term SPH term debt Securitisation SSA

EUR450m bondEUR350m bond

US$221m bond

After year-end the acquisition of the Matane mill was finalised.The purchase price was funded with a new 8-year term loan.

Capex development

11

0

100

200

300

400

500

600

700

2013 2014 2015 2016 2017 2018 2019 2020F

US$

milli

on

Maintenance Efficiency and expansion Forecast Capex reduction

US$150m reduction over 2 years

12

Market and Segmental overview

Global graphic paper market trends

13

Supply and demand Demand remains very weak Capacity reductions positively impacting operating rates over next 12 months

Selling prices and input costs Small declines in paper prices Paper pulp prices declined due to high inventories and weak demand

Strategy Focus on costs to maintain margins Manage operating rates through downtime, market share, flexibility of machines Reduce or convert capacity as markets develop/change Increase pulp integration over time

Global packaging and speciality paper market trends

14

Supply and demand Brand owners pushing for paper-based packaging solutions, demand remains firm Containerboard conversions entering the market

Selling prices and input costs Stable selling prices; negotiations upcoming for 2020 pricing Paper pulp prices declined due to high inventories and weak demand

Strategy Ramp-up volumes from conversions, grow into new markets Innovation and sustainability key differentiators Improve pulp integration – Matane acquisition

Sappi Europe

15

Sales Tons -7%year-on-year

Sales -6%year-on-year

EBITDA* -28%year-on-year


o Profitability declined due to lower graphics sales volumes

o CWF volumes down 7%, industry was down 13%; CM volumes down 15% due to our Lanaken conversion

o Pricing for graphics and packaging and speciality higher y-o-y.

o Variable costs were 4% lower, led by purchased paper pulp; fixed costs were 5% higher due to additional maintenance

o 37,000t downtime – US$12 million EBITDA impact


Sappi North America

16

Sales Tons +7%year-on-year

Sales +2%year-on-year



o Packaging and speciality volumes up 36%, margins increasing

o Profitability down year-on-year due to downtime and lower DWP prices

o Graphics demand down13%, 57kt downtime taken US$13m EBITDA impact. Realised prices were flat y-o-y.

o Cloquet debottlenecking complete – DWP volumes rose, pricing ~ 10% lower y-o-y

o Variable and fixed costs were 4% and 7% lower respectively (last year included the extended shut of PM1)


Global DWP market trends

17

Supply and demand Demand continues to be strong, growing by ~6% per annum VSF remains oversupplied in a weak Chinese textile market Swing producers on DWP as a result of weak paper pulp markets

Selling prices and input costs Both DWP and VSF prices historically low Wood chip prices remain elevated despite weak pulp prices

Strategy Grow with the market, 110kt expansion at Saiccor 40% complete Evaluate longer term opportunities for more substantial increase in volumes Commitment to sustainability key – wood certification gives Sappi a competitive advantage

Sappi South Africa

18

Sales Tons +2%year-on-year

Sales +7%year-on-year



o Increased sales volumes and a weaker ZAR/USD exchange rate were insufficient to offset lower DWP prices and higher wood and energy costs

o Progress on the Saiccor expansion continues to plan, completion expected late 2020

o Packaging demand weakened late in the quarter as the broader SA economy slowed, citrus exports lower than expected

o Fixed cost rose ahead of inflation; variable costs were higher, led by energy and wood prices


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

19

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

20

We work to lower fixed and variable costs, increase cost efficiencies and invest for cost advantages. Group efficiency and procurement initiatives US$87m

realised in 2019 Ongoing continuous improvement across all mills. Investigate pulp integration opportunities in US and

EU – Matane acquisition, small debottlenecking project in EU in 2020

Saiccor expansion will lead to lower variable costs

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

21

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

Cash purchase price of US$158m represents 3.0X 2018 EBITDA of $53M and 6.3X estimated

Sustainable EBITDA of $25M

22

Rationalisedeclining

businesses

Continuouslybalance

paper supplyand demand in all regions

Wherepossible

convert paper machines tohigher margin

businesses

Our group strategy

23

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 via conversion Evaluating graphic paper capacity

Maintaina healthybalancesheet

Optimiseworkingcapital

Strongcash

generationSmart

financing

Our group strategy

24

Maximum sustained leverage - 2x Net debt:EBITDA

No new major capex commitments

Reduced capex by US$150m over two years

Leverage covenant adjusted for next two years

Tight working capital management

8-year term loan raised to fund Matane acquisition

Accelerategrowth in

higher margingrowth

segments


biorefinerystream

Enhancespecialisedcelluloseportfolio

Expandpaper

packaginggrades

Our group strategy

25

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 40% complete 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 Extend barrier coating opportunity

We expect markets will remain tough, and profitability to be negatively impacted

DWP pricing remains under pressure, down over $300/ton (>30%) from last year, demand

growing

We continue to make good progress with customer acceptance in our packaging and speciality

segment, volumes will ramp-up in 2020

Global graphic paper markets are weak, input costs providing some relief

With low prices for DWP, and paper markets that have yet to recover, we expected EBITDA in

our next quarter to be below that of the prior year.

Temporary halt to dividends until market conditions improve

26

Outlook

Thank you

27

28

Supplementary information


29

EBITDA and operating profit


201 20

8

155

221

172

211

155

224

197

187

118

185

136 14

5

93

152

105

142

85

148

128

117

48

109

0

50

100

150

200

250

US$

milli

on

EBITDA Operating profit ex special items


30

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

1501

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 Q4 19

US$

milli

on

Net debt Net debt/LTM EBITDA**

2.2

4.6

Sappi specialities and packaging papers

31

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

32

Product Groups and ProductsEU Packaging

and Specialities

Accelerategrowth in

higher margingrowth

segments


biorefinerystream

Enhancespecialisedcelluloseportfolio

Expandpaper

packaginggrades

Packaging and Speciality papers expansion plans

33

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)

34

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 XX in our Q4 FY19 financial results booklet (available on www.sappi.com) for a definition of special items.

Q4 FY19 Q4 FY18 FY 2019 FY 2018

Tons sold (‘000) 801 864 3,241 3,366

Sales (EURm) 633 674 2,586 2,495

Price/Ton (EUR) 790 777 798 741

Cost/Ton* (EUR) 764 733 770 701

Operating profit excluding special items** (EURm) 21 38 92 137


Western Europe

35

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.

36

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 26 in our Q4 FY19 financial results booklet (available on www.sappi.com) for a definition of special items.

Q4 FY19 Q4 FY18 FY 2019 FY 2018

Tons sold (‘000) 388 363 1,379 1,371

Sales (USDm) 394 388 1,466 1,432

Price/Ton (USD) 1,015 1,069 1,063 1,044

Cost/Ton* (USD) 972 983 1,044 1,009

Operating profit excluding special items** (USDm) 17 31 27 49


United States of America

37

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.

38

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 26 in our Q4 FY19 financial results booklet (available on www.sappi.com) for a definition of special items.

Q4 FY19 Q4 FY18 FY 2019 FY 2018

Tons sold (‘000) 450 441 1,639 1,620

Sales (ZARm) 5,145 4,824 19,253 17,333

Price/Ton (ZAR) 11,433 10,939 11,747 10,699

Cost/Ton* (ZAR) 9,216 8,488 9,410 8,524

Operating profit excluding special items** (ZARm) 998 1,081 3,831 3,524


39

Paper pulp prices*

* Source: FOEX, CCF group.

400

500

600

700

800

900

1000

1100

400

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

40

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

41

Dissolving pulp prices*

* Source: CCF group

600

650

700

750

800

850

900

950

1,000

1,050

1,100

Imp SW DWP Imp HW DWP China origin DWP

US$

/ton

42

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

43

US$m Q4 FY19 Q4 FY18 FY 2019 FY 2018Cash generated from operations 176 212 673 709Movement in working capital 132 6 (15) (79)

Net finance costs paid (5) (28) (51) (84)

Finance income received 3 4 9 18

Taxation (paid) refund - (23) (51) (73)

Dividend paid - - (92) (81)

Cash generated from operating activities 306 171 473 410Cash utilised in investing activities (133) (145) (472) (664)Capital expenditure (135) (146) (471) (541)

Proceeds on disposal of assets 1 - 3 11

Acquisition of subsidiary - - - (132)

Other non-current asset movements 1 1 (4) (2)

Net cash generated (utilised) 173 26 1 (254)

Excluding special items* reconciliation to reported operating profit

44

EBITDA and operating profit

* Refer to page 26 in our Q4 FY19 results booklet (available on www.sappi.com) for a definition of special items.

US$m Q4 FY19 Q4 FY18 FY 2019 FY 2018

EBITDA excluding special items* 185 224 687 762Depreciation and amortisation (76) (76) (285) (282)

Operating profit excluding special items* 109 148 402 480Special items* - gains (losses) (12) (13) (19) 9

Plantation price fair value adjustment 5 (3) 19 27

Acquisition cost (2) - (2) (2)

Net restructuring provisions - (3) - 1

Profit on disposal and written off assets (7) (4) (11) 4

Asset impairments (7) - (18) -

Asset impairment reversals - - 8 3

Black Economic Empowerment charge - - - (1)

Fire, flood, storm and other events (1) (3) (15) (21)

Segment operating profit 97 135 383 489


Fibre properties and applications

45

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

46

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

47

Documents

Q4 FY19 financial results - sappi-reports.co.za · * Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page