Q3 FY19 financial results · Avoid higher capital cost of internal high yield pulp capacity –...

1 August 2019

Chief Executive Officer

Steve Binnie

Sappi Limited

Q3 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 – Q3 2019

3

EBITDA* $118m

Profit for the periodUS$8 million

EPS* 4 US cents

Acquisition of Matane Mill

o Challenging quarter for our major products

o Commercial downtime of ~89,000t graphic paper• US$19m EBITDA impact estimated

o Lower DWP pricing as VSF operating rates and pricing declined

Key ratios Q3 FY17 Q3 FY18 Q3 FY19

Net debt/LTM EBITDA 1.7 2.1 2.4

Interest cover 8.4 11.0 9.6

EBITDA % 12.3 10.7 8.6

ROCE % 12.8 9.7 5.2

* Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page 22 in our Q3 FY19 financial results booklet (available on www.sappi.com) for a definition of special items.

Excluding special items*

http://www.sappi.com/

EBITDA* reconciliation

4

Q3 FY18 to Q3 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

50

75

100

125

150

175

200

155 (18) 29 (40) (10) (6) 8 118

Q3 FY18 EBITDA Sales volume Price & mix Variable & deliverycosts

Fixed costs Other Exchange rate Q3 FY19 EBITDA

Sales revenue

2019 2018Exchange rates:Average rate for the Quarter: US$1 = ZAR 14.3772 12.6312Average rate for the Quarter: €1 = US$ 1.1236 1.1920

Jun

Product contribution split – LTM

5

* Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and page 22 in our Q3 FY19 financial results booklet (available on www.sappi.com) for a definition of special items. Data above excludes treasury operations and insurance captive.

44%

17%

39%

Dissolving WoodPulpPackaging &Speciality PapersPrinting & WritingPapers

59%10%

31%

EBITDA excluding special items Operating profit excluding special items


Maturity profileFiscal years

6

226

6721 44 44 21

393

68

512

221

367

81107

0

100

200

300

400

500

600

2019 2020 2021 2022 2023 2024 2025 2026 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

2013 2014 2015 2016 2017 2018 2019E 2020F

US$

milli

on

Maintenance Efficiency and expansion Forecast

8

Market and Segmental overview

Global P&W paper market trends

9

Supply and demand Demand remains very weak Capacity reductions expected in US and Europe over next 18 months

Selling prices and input costs Paper prices beginning to decline – driven by lower demand and lower costs Pulp prices falling, led by China, partially offset by weaker Euro and Rand

Strategy Focus on costs to maintain margins Manage operating rates through downtime, market share, flexibility of machines Reduce or convert capacity in line with demand declines Increase pulp integration over time

Global packaging and speciality paper market trends

10

Supply and demand Additional containerboard conversions entering the market Smaller speciality packaging producers exiting due to cost pressures Demand continues to grow, long-term prospects encouraging, driven by legislation and

consumer preference Brand owners pushing for paper based packaging solutions

Selling prices and input costs Realised prices rose, particularly for flexible packaging, labels, and silicone base papers Pulp prices falling, led by China, partially offset by weaker Euro and Rand

Strategy Ramp-up volumes from conversions, grow into new markets We aim to be an innovative and sustainable supplier Improve pulp integration – Matane acquisition announced

Sappi Europe

11

Sales Tons -5%year-on-year

Sales flatyear-on-year

EBITDA* -24%year-on-year


o Weak domestic and export demand - downtime of 30k tons ~US$8m EBITDA impact

o Realised prices for graphics were 5% higher and our packaging and specialities were 4% higher than last year

o Variable costs 3% higher than last year, fixed costs flat

o Lanaken conversion complete


Sappi North America

12

Sales Tons +1%year-on-year

Sales +1%year-on-year

EBITDA* -45%year-on-year


o Commercial downtime of 59kt ~ $11m EBITDA impact

o Cloquet debottlenecking complete

o Packaging and paperboard volumes continue to grow

o Variable costs were 5% higher; fixed costs 7% lower (last year included the extended shut of PM1)


Global DWP market trends

13

Supply and demand VSF capacity growing faster than demand, operating rates declining Demand continues to be strong, growing by ~6% per annum

Selling prices and input costs DWP selling prices declining as VSF prices and margins fall Wood price increases, chemical costs declining

Strategy Grow with the market (debottlenecked volumes 2018/19, 110kt expansion at Saiccor underway) Evaluate external opportunities for more substantial increase in volumes – ROCE critical Commitment to sustainability key

Sappi South Africa

14

Sales Tons -2%year-on-year

Sales +7%year-on-year

EBITDA* +7%year-on-year


o Lower DWP pricing due to excess VSF capacity

o DWP volumes were lower than prior quarter due to scheduled annual maintenance at Ngodwana and Saiccor

o Lower containerboard volumes - delayed start to the citrus season

o Variable costs 14% higher y-o-y (wood, energy) fixed costs rose with inflation


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

EU – Matane acquisition Saiccor expansion will lead to lower variable costs Evaluating P&W capacity in Europe

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

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

Purchase price of US$175m represents 3.3X 2018 EBITDA of $53M and 7.0X Sappi’s

2019 estimated EBITDA of $25M

18

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. Downtime taken at mills to lower inventories Progressive transition of Lanaken Mill out of LWC Reduced CWF exposure at Maastricht, Ehingen and

Somerset PM1

Maintaina healthybalancesheet

Optimiseworkingcapital

Strongcash

generationSmart

financing

Our group strategy

20

Maintain leverage below 2x Net debt:EBITDA No new major capex commitments Finance costs US$60-70m/annum going

forward 7 yr €450m bond raised @3.125% - used to

repay €450m 2022 bond

Accelerategrowth in

higher margingrowth

segments


biorefinerystream

Enhancespecialisedcelluloseportfolio

Expandpaper

packaginggrades

Our group strategy

21

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 has started 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

DWP pricing will be under pressure but we expect volumes to continue to grow as we utilize our

expanded capacity

Packaging and speciality end-markets are variable. Despite macro concerns, volumes are

growing; ramp-ups, trials and qualification progressing.

Further weakness in graphic grades could result in additional downtime. We expect significant

industry capacity to shut/convert, and operating rates to rise.

$200m in capex for the remainder of the year, majority at Saiccor and Lanaken

With weak graphic paper markets, DWP price pressure, we expect our results for Q4 will be

below that of the prior year

22

Outlook

Thank you

23

24

Supplementary information

Excluding special items*

25

EBITDA and operating profit


201 20

8

155

221

172

211

155

224

197

187

118

136 14

5

93

152

105

142

85

148

128

117

48

0

50

100

150

200

250

US$

milli

on

EBITDA Operating profit ex special items


26

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

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

US$

milli

on

Net debt Net debt/LTM EBITDA**

2.4

4.6

Sappi specialities and packaging papers

27

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

28

Product Groups and ProductsEU Packaging

and Specialities

Accelerategrowth in

higher margingrowth

segments


biorefinerystream

Enhancespecialisedcelluloseportfolio

Expandpaper

packaginggrades

Packaging and Speciality papers expansion plans

29

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)

30

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 Q3 FY19 financial results booklet (available on www.sappi.com) for a definition of special items.

Q3 FY19 Q3 FY18 FYTD 19 FYTD 18

Tons sold (‘000) 789 833 2,440 2,502

Sales (EURm) 637 636 1,953 1,824

Price/Ton (EUR) 807 764 800 729

Cost/Ton* (EUR) 785 726 771 689

Operating profit excluding special items** (EURm) 18 31 72 99


Western Europe

31

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.

32

Sappi North America



Tons sold (‘000) 320 318 991 1,008

Sales (USDm) 343 339 1,072 1,044

Price/Ton (USD) 1,072 1,066 1,082 1,036

Cost/Ton* (USD) 1,100 1,063 1,072 1,018

Operating profit excluding special items** (USDm) -9 1 10 18


United States of America

33

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.

34

Sappi South Africa



Tons sold (‘000) 375 383 1,189 1,179

Sales (ZARm) 4,418 4,105 14,108 12,509

Price/Ton (ZAR) 11,781 10,718 11,866 10,610

Cost/Ton* (ZAR) 10,459 9,274 9,483 8,538

Operating profit excluding special items** (ZARm) 496 553 2,833 2,443


35

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

36

Dissolving pulp prices*

* Source: CCF group

700

750

800

850

900

950

1,000

1,050

Imp SW DWP Imp HW DWP China origin DWP

US$

/ton

37

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

38

US$m Q3 FY19 Q3 FY18 FYTD 19 FYTD 18Cash generated from operations 118 141 497 497Movement in working capital 20 33 (147) (85)

Net finance costs paid (15) (21) (40) (42)

Taxation (paid) refund (5) (6) (51) (50)

Dividend paid - - (92) (81)

Cash generated from operating activities 118 147 167 239Cash utilised in investing activities (135) (188) (339) (519)Capital expenditure (135) (188) (336) (395)

Proceeds on disposal of assets 1 1 2 11

Acquisition of subsidiary - - - (132)

Other non-current asset movements (1) (1) (5) (3)

Net cash generated (utilised) (17) (41) (172) (280)

Excluding special items* reconciliation to reported operating profit

39

EBITDA and operating profit

* Refer to page 22 in our Q3 FY19 results booklet (available on www.sappi.com) for a definition of special items.

US$m Q3 FY19 Q3 FY18 FYTD 19 FYTD 18

EBITDA excluding special items* 118 155 502 538Depreciation and amortisation (70) (70) (209) (206)

Operating profit excluding special items* 48 85 293 332Special items* - gains (losses) (2) (1) (7) 22

Plantation price fair value adjustment 1 8 14 30

Acquisition cost - - - (2)

Net restructuring provisions - - - 2

Profit on disposal and written off assets (1) (1) (4) 8

Asset impairments - - (11) -

Asset impairment reversals - 3 8 3

Black Economic Empowerment charge - - - (1)

Fire, flood, storm and other events (2) (11) (14) (18)

Segment operating profit 46 84 286 354


Fibre properties and applications

40

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

41

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

42

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