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14 May 2018
Chief Executive Officer
Steve Binnie
Sappi Limited
Q2 FY18 financial results delivering on
strategy
2018
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.
3
Summary
Highlights
EBITDA ex-special items: US$211m (Q2 FY17: US$208m)
Profit for the period: US$102m (Q2 FY17: US$88m)
EPS ex-special items: 17 US cents (Q2 FY17: 17 US cents)
Net debt: US$1,632m (Q2 FY17: US$1,329)
Acquisition of Cham speciality paper business completed
Q2 FY18
4
EBITDA and operating profitExcluding special items*
5
* Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page 22 in our Q2 FY18 financial results booklet (available on www.sappi.com) for a definition of special items.
195 20
8
211
133 14
5
142
0
50
100
150
200
250
Q2 FY16 Q2 FY17 Q2 FY18
US$
milli
on
EBITDA Operating profit
Key ratios Q2 FY16 Q2 FY17 Q2 FY18
Net debt/LTM EBITDA 2.4 1.7 2.2
Interest cover 6.5 7.7 11.0
EBITDA % 15.1 15.8 14.1
ROCE % 19.3 20.5 16.8
EBITDA* bridgeQ2 FY17 to Q2 FY18
6
* EBITDA = EBITDA excluding special items
Sales revenue
US$
milli
on
Notes:
1. All variances were calculated excluding Sappi Forestry.
2. “Exchange rate” reflects transactional and translation effect on consolidation.2018 2017
Exchange rates:Average rate for the Quarter: US$1 = ZAR 11.9577 13.2260Average rate for the Quarter: €1 = US$ 1.2286 1.0656
Mar
160
200
240
280
208 10 55 (36) (11) (5) (10) 211
Q2 FY17 EBITDA Sales volume Price & mix Variable & deliverycosts
Fixed costs Other Exchange rate Q2 FY18 EBITDA
Product contribution split – LTM
7
* Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page 22 in our Q2 FY18 financial results booklet (available on www.sappi.com) for a definition of special items. Data above excludes treasury operations and insurance captive.
45%
16%
39%SpecialisedCelluloseSpecialities &PackagingPrinting papers
58%
16%
26%
EBITDA excluding special items Operating profit excluding special items
Maturity profileFiscal years
8
459
7828 31 49 48
576
453
91
221
398
4297
0
100
200
300
400
500
600
700
2018 2019 2020 2021 2022 2023 2024 2032
US$
milli
on
Cash Short-term SPH term debt Securitisation SSA
EUR450m bond
EUR350m bond
US$221m bond
Capex development
9
0
100
200
300
400
500
600
700
2013 2014 2015 2016 2017 2018E 2019E
US$
milli
on
Maintenance Efficiency and expansion
Saiccor expansion capex subject to EIA approval
10
Divisional overview
Global P&W paper market trends
11
Supply and demand Operating rates remain healthy Capacity closures and conversions in North America and Europe
Selling prices and input costs Paper prices rising globally, tracking pulp price increases Latex prices declining Lag effect between pulp and paper prices
Strategy Capacity conversions into other markets (Somerset/Maastricht/Lanaken/Ehingen) Investments at key mills/machines to lower costs Procurement and efficiency programs to further reduce costs.
Global speciality & packaging paper market trends
12
Supply and demand Environmental concerns spurring legislation incentivising the use of more paper-based
packaging Demand forecast to grow 1-5%, more recently well above this More conversions expected into various grades of a highly fragmented market
Selling prices and input costs Price increases announced in April Softwood and hardwood fiber costs continue to rise
Strategy Acquisition of Cham speciality paper business Increase capacity and product offering to a growing customer base Procurement and efficiency programs to further reduce costs Transfer of Rockwell technology to paper based products
Global DWP market trends
13
Supply and demand Continued strong demand from new viscose capacity – depressing VSF prices New market DWP capacity likely in 2019 – limited capacity addition 2018. Paper pulp prices supporting DWP pricing
Selling prices and input costs DWP market prices steady Caustic soda costs have risen – impacting VSF producers as well
Strategy Long-term global growth opportunities Align growth with leading VSF customers – environmental and social performance key
Strong performance due to traction on price increases for coated paper, and strong volume growth in our specialities and packaging business segment.
Specialities and packaging papers volumes were up 12% versus last year, excluding Cham. Variable costs rose 5% vs last year as pulp prices continued to rise. Latex, wood and energy
prices provided some relief.
14
Sappi Europe
0%
2%
4%
6%
8%
10%
12%
0
20
40
60
80
Q2 FY15 Q2 FY16 Q2 FY17 Q2 FY18
Eur
mill
ion
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 22 in our Q2 FY18 financial results booklet (available on www.sappi.com) for a definition of special items.
600
650
700
750
800
850
900
Jan-
17
Apr
-17
Jul-1
7
Oct
-17
Jan-
18
Apr
-18
BHKP Europe (EUR) CWF-S 100g, Germany
Better results due to improved volumes in all product categories and higher realised prices for coated paper – up 5% YoY.
As demand for DWP grew, we swung more volume to DWP at Cloquet. Variable costs higher due to increases in purchased paper pulp volumes and prices. Energy and
chemical prices rose as well.
15
Sappi North America
* 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 22 in our Q2 FY18 financial results booklet (available on www.sappi.com) for a definition of special items.** Source: RISI
0%
2%
4%
6%
8%
10%
12%
0
10
20
30
40
50
Q2 FY15 Q2 FY16 Q2 FY17 Q2 FY18
US
$ m
illio
n
EBITDA* EBITDA Margin*
800
820
840
860
880
900
920
940
960No 3 Coated freesheet - 60 lb (90g) rolls US$/ton - US East**
Despite higher volumes, margins were lower due to the stronger Rand relative to the US Dollar. DWP volumes were higher than last quarter but lower than last year due to a temporary
disruption in power supply to Saiccor. Packaging volumes improved with citrus industry growth more than offsetting the impact of
drought conditions on the agricultural packaging demand in the Western Cape.
16
Sappi Southern Africa
* EBITDA and EBITDA margin shown exclude special items. Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page 22 in our Q2 FY18 financial results booklet (available on www.sappi.com) for a definition of special items.** Source: CCF
0%
5%
10%
15%
20%
25%
30%
35%
40%
400
600
800
1000
1200
1400
1600
1800
Q2 FY15 Q2 FY16 Q2 FY17 Q2 FY18
ZAR
mill
ion
EBITDA* EBITDA Margin*
775.00
800.00
825.00
850.00
875.00
900.00
925.00
950.00
975.00
1000.00China market price – Hardwood DWP (US$/ton)**
Maintaina healthybalancesheet
Rationalisedeclining
businesses
Accelerategrowth in
high marginproducts
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
17
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
18
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 2018. Ongoing continuous improvement across all mills. Debottleneck pulp capacity in Europe Saiccor expansion will lead to lower variable costs €30m upgrade to Gratkorn PM9
Rationalisedeclining
businesses
Continuouslybalance
paper supplyand demand in all regions
Wherepossible
convert paper machines tohigher margin
businesses
Our group strategy
19
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. Conversion of Somerset PM1 and Maastricht Mill
Maintaina healthybalancesheet
Optimiseworkingcapital
Strongcash
generationSmart
financing
Our group strategy
20
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
Accelerategrowth in
high marginproducts
Extractvalue from our
biorefinerystream
Enhancespecialisedcelluloseportfolio
Expandpaper
packaginggrades
Our group strategy
21
We will make investments in existing and adjacent areas with strong potential growth. Debottlenecking of Saiccor, Cloquet and Ngodwana
DWP. Investments in Speciality packaging incl. Rockwell
and Cham Paper Additional packaging at Ngodwana and Tugela Mills. Securing additional HW timber supply. Biomaterials, bio-chemicals – lignins, sugars. Expansion of Saiccor by 110kt/annum
Cham speciality paper acquisition
Carmignano mill Production: 100 000 tons p.a. Products: C1S flexpack, C1S label paper, base paper for digital imaging
Condino mill Production: 60 000 tons p.a.Products: Glassine and super calendared flexible packaging paper
22
Acquisition complete 28 February 2018
• Integration proceeding according to plan
• Synergies of €10M expected within 2 years
• Will add €30M of EBITDA at 15% margin post-synergies
Accelerategrowth in
high marginproducts
Extractvalue from our
biorefinerystream
Enhancespecialisedcelluloseportfolio
Expandpaper
packaginggrades
Our group strategy
23
Ngodwana Energy Biomass Facility ZAR1.8bn 25MW boiler approved by DoE Construction begins Q3 FY18, expected completion
Q4 FY20 Sappi share ZAR139m = 30% equity stake ROI~19% Significant BBBEE benefits
Accelerategrowth in
high marginproducts
Extractvalue from our
biorefinerystream
Enhancespecialisedcelluloseportfolio
Expandpaper
packaginggrades
Europe Maastricht: construction done, 2 year ramp-up
-160k CWF, +150k specialities (FBB) Ehingen: to be completed Q3 FY18, 1.5 year ramp-up
-75k CWF, +60k specialities (WTL) Alfeld: construction to start FY19, done 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)
Speciality and packaging papers expansion plans
24
Accelerategrowth in
high marginproducts
Extractvalue from our
biorefinerystream
Enhancespecialisedcelluloseportfolio
Expandpaper
packaginggrades
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 subject to positive EIA
External Paper pulp prices impacting valuations and returns
DWP expansion plans
25
26
Outlook
DWP demand good – prices stable, lower volumes expected due to Q3 maintenance shuts
EU operating rates strong, paper prices rising.
Somerset conversion will be completed in Q3. US paper price increases negating higher pulp
and chemical costs
Speciality and packaging paper demand continues to grow as customers and consumers switch
to paper based solutions.
Q3 performance to be in-line with last year due to stronger ZAR and projects offsetting stronger
paper markets.
27
Outlook
Thank you
28
29
Supplementary information
Excluding special items*
30
EBITDA and 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 FY18 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
112
133
97
145
136 14
5
93
152
105
142
0
50
100
150
200
250
US$
milli
on
EBITDA Operating profit ex special items
31
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.
238
0
224
8
228
6
194
6 204
0
191
6
191
7
177
1
173
4
165
2
1583
1408
1338
1329
1318
1322 1349
1632
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 Q2 FY17 Q3 FY17 Q4 FY17 Q1 FY18 Q2 FY18
US$
milli
on
Net debt Net debt/LTM EBITDA**
2.2
4.6
Western Europe
32
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.
33
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 22 in our Q2 FY18 financial results booklet (available on www.sappi.com) for a definition of special items.
Q2 FY18 Q2 FY17 1H FY18 1H FY17Tons sold (‘000) 847 839 1,669 1,706Sales (EURm) 616 581 1,187 1,183
Price/Ton (EUR) 727 692 711 693Cost/Ton* (EUR) 684 658 670 653
Operating profit excluding special items** (EURm) 37 29 68 69
Sappi specialities and packaging papers
34
Global production sites
Alfeld Mill (Germany)Flexible packaging, label,
SBB board, topliner and release liner
Carmignano Mill (Italy)C1S flexible packagingand self-adhesives
Condino Mill (Italy)Glassines,
uncoated flexible packaging
Cloquet Mill (USA)Label paper – LusterCote®
Ehingen Mill (Germany)Topliner – Fusion®
Maastricht Mill (The Netherlands)Folding boxboard – atelier™
Ngodwana Mill (South Africa)Liner – KraftPride®
Somerset Mill (USA)Label paper – LusterCote®
and Flexpack paper – LusterPrint®
Tugela Mill (South Africa)Liner – UltraTest®
and Fluting – UltraFlute®
Westbrook Mill (USA)Casting & release paper – Ultracast®and different classic brands
Global market size – Speciality packaging
35
Markets and growth rates
o C1S paperso 1.2 million tonso Growth: 2-3%pa
Flexible packagingand label papers Release liner
o CCK graphic artso 300,000 tonso Growth: 6%pa
Rigid packaging
o SBS printing andconverting
o 4.7 million tonso Growth: 2%pa
Containerboard
o Coated white Topliner
o 1 million tonso Growth: 1-2%pa
Functional papers
o Barrier and greaseresistant papers
o Virtually unlimited
Source for growth rates: AWA, Pira and RISI.
United States of America
36
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.
37
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 22 in our Q2 FY18 financial results booklet (available on www.sappi.com) for a definition of special items.
Q2 FY18 Q2 FY17 1H FY18 1H FY17Tons sold (‘000) 347 329 690 682Sales (USDm) 363 335 705 689
Price/Ton (USD) 1,046 1,018 1,022 1,010Cost/Ton* (USD) 994 976 997 978
Operating profit excluding special items** (USDm) 18 14 17 22
Dissolving wood pulp market
38
Viscose-grade DWP is used almost exclusively in textile applications
Source: Hawkins Wright; Fibre Year 2017; RISI ‘Dissolving Pulp Monitor’ (Jan 2017) and ‘Outlook for the Global Dissolving Pulp Market’.
OtherEurope Americas China
0.2
5.3
0.6
0.6
1.7
3.7
1.9
7.8
Market size 2016 Mtpa
CAGR 2010-16%
Viscose
Cellulose ethers and MCC
Cellulose acetate tow
Nitro-cellulose and other
Products (examples)
6.6 ~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
Fibre properties and applications
39
Cellulosic fibre properties are superior to cotton and polyester for many textile applications
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
40
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%
41
Pulp prices*
* Source: FOEX, CCF group.
600
700
800
900
1 000
1 100
1 200
US$
/ton
NBSK Europe BHKP Europe Commodity DWP Cotton linter pulp
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
43
Sappi Southern 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 22 in our Q2 FY18 financial results booklet (available on www.sappi.com) for a definition of special items.
Q2 FY18 Q2 FY17 1H FY18 1H FY17Tons sold (‘000) 413 408 796 772Sales (ZARm) 4,331 4,619 8,404 8,641
Price/Ton (ZAR) 10,487 11,321 10,558 11,193Cost/Ton* (ZAR) 8,186 8,093 8,183 7,972
Operating profit excluding special items** (ZARm) 950 1,317 1,890 2,486
Excluding Sappi Forests
Cash flow
44
US$m Q2 FY18 Q2 FY17 1H FY18 1H FY17Cash generated from operations 194 203 356 405Movement in working capital (35) (26) (118) (123)
Net finance costs paid (15) (24) (21) (41)
Taxation refund (paid) (50) (32) (44) (66)
Dividend paid (81) (59) (81) (59)
Cash generated from operating activities 13 62 92 116Cash utilised in investing activities (238) (42) (331) (79)Capital expenditure (119) (45) (207) (82)
Net proceeds on disposal of assets 10 1 10 3
Acquisition of subsidiary (132) - (132) -
Other movements 3 2 (2) -
Net cash generated (utilised) (225) 20 (239) 37
Excluding special items reconciliation to reported operating profit
45
EBITDA and operating profit
* Refer to page 22 in our Q2 FY18 results booklet (available on www.sappi.com) for a definition of special items.
US$m Q2 FY18 Q2 FY17 1H FY18 1H FY17
EBITDA excluding special items* 211 208 383 409Depreciation and amortisation (69) (63) (136) (128)
Operating profit excluding special items* 142 145 247 281
Special items* - gains (losses) 12 (3) 23 4
Plantation price fair value adjustment 6 1 22 12
Acquisition cost (2) - (2) -
Net restructuring provisions 2 - 2 -
Profit on disposal and written off assets 9 - 9 -
BBBEE charge (1) (1) (1) (1)
Fire, flood, storm and other events (2) (3) (7) (7)
Segment operating profit 154 142 270 285
Thank you
46