Sappi Ltd S/Adr

Good day to everybody. Thanks for joining on the call. As always, I will run through the investor deck, making a few comments and highlights, and then we'll open it up for questions. And I'm going to start on page three, which is a summary for the full financial year 2023. All in all, I think it's been a satisfactory year. As you know, we faced a number of macroeconomic challenges. And we also faced the impact of destocking throughout the year. Having said that, there was a number of milestones. As I said, we delivered $731 million of EBITDA, which is satisfactory. The South African business actually delivered a record EBITDA, so we're proud of that. And the North American business was the second highest ever. Unfortunately, did face challenges. The paper markets were weak, related to the reasons that I mentioned earlier. And in particular, that had an impact on our European business, which is the most exposed to those weak paper markets, and in particular, graphic paper. The pulp segments profitability was impacted by lower average pricing. and cost them on top of that. Having said that, net debt was, we're particularly proud that net debt is now the lowest level in 30 years due to the strong cash generation. So in spite of the fact that our profits were less, we were still able to draw, generate strong cash flows. And on the back of that, we were able to declare a dividend of 15 US cents per share. Turn into page four, which is the quarter highlights. The EBITDA came in at 168 million, which was obviously better than the prior quarter. And in fact, ahead of our own expectations, we definitely picked up more momentum as the quarter was completed. But it is important to stress that we still have challenging trading conditions. You'll see from our outlook statement later that that is still continuing into Q1. We did see a recovery in volumes for our graphic paper segment. It's, and I mentioned this previously on the last call, it's not a V-shaped recovery. It's a gradual recovery. But we did benefit, you know, during the core, quarter from higher volumes. It was record pulp sales volumes. We've seen stability at the cycle mill, and we benefited from that during the quarter. And then in the packaging segment, once again, the volumes were better, not a V-shaped recovery again, but better. However, that's a segment that we're still seeing the impact of high inventory levels. I think it's played in graphics, and we're back to the macro factors affecting demand. Whereas in packaging, we're still seeing a little bit of high inventory levels downstream. And obviously, in that segment, the unfavorable economic climate and its impact on consumer demand. Slide five has our product contribution split. Obviously, we've had volatile times in the last couple of years. But I think the overall trend that is playing out, and that's the importance of our strategic shift away from graphics towards the higher margin, the higher growth segments of pulp and packaging. And you see that on the right-hand side. Slide six has our earnings bridge. Normally, we do it year on year. This time we thought it would be useful to do it quarter on quarter because I think it tells a better, it tells a clearer sense of the underlying trends. And I mean, firstly, higher volumes coming through and that was across the segments. But, and it's something that we talked about in prior quarters, selling prices did come off. And that you would expect from the highs that we experienced earlier in the year. and a negative impact on graphics and packaging. The pulp price is a little bit in the quarter, but I'll talk later. We obviously have seen that turning positive in recent weeks. The costs from a significant high, we did benefit from lower costs coming through. And it's probably fair to say that we're getting close to the bottom. And once again, in our outlook statement, it does look a number of the variable costs are starting to rise once again. But all in all, $168 million of EBITDA are obviously significantly above the lows of Q3. Slide seven just reinforces the story on the cost side. And you can see all our major categories are coming down in the quarter. But as I said earlier, starting to level off and then some of them even turning upwards now. Page 8 highlights the debt story. And you can see we've basically halved it in the last few years. It's an important strategic priority for us. You know, we're very proud of the fact that we've been able to bring this down. Interestingly enough, the final number for debt of 1.085 was in spite of the fact that we had a negative currency translation impact from euros to dollars of 76. So, you know, we set ourselves a target and we were basically at those levels and very pleased with that progress. Slide nine has the maturity profile on that debt. And firstly, let me point out that the bigger maturities on the Euro debt are still a number of years out. And, you know, we're confident that, you know, we can manage that refinancing. In the short term, we've got some debt maturing in the current year, some SA bonds, some term notes in South Africa, you know, we're confident that we will refinance them. And then that $88 million you see there is a loan in Europe. And, you know, we'll be able to repay that with the cash that we have in the business in the current year. Turning to slide 10, the cash flow and capex. strong cash generation, as you can see, despite lower profits, another 200 million. The capex came in the year under the 400 million that we talked about in earlier quarters. That's just a little bit of spillage into the next year. The estimate of capex for 2024 is about 500 million. That's made up of maintenance capex of about The sustainability capex of about 60, 70 million. And then the balance is a big project that we obviously have talked about previously, the kind of expansion of PM2 at Somerset and included in the 24 years, about 150 million for that. And that's, I'll talk more about that just now. Slide 11. We keep tracing the discipline capital allocation. I think you see the benefits of that in our cash generation and the free cash flow that we've made. On the profit improvement side, we the closure of the stock that mill, and we're investigating the potential closure of the Mill. That will reduce capacity for graphic paper in Europe by about, It's an important step in our strategy as we reposition the business towards the higher growth segments of packaging and pulp. We had other projects on the packaging side, smaller projects, part of our overall strategy to reposition the business. In terms of shareholders' returns, yes, we didn't make our targets, but we were able to maintain our dividend. And as you know, earlier in the year, there was a share buyback program. And then finally, the expansion project, Somerset and conversion project included in the 23 capex number was 100 million for that project. So we're making good progress. Then moving to slide 13, and I'm moving into the product segments, and I'll just talk at a high level. All in all, for the year, volume's up, but we did experience lower selling prices, you know, as DP prices came off the highs that we experienced in the prior year. because of that, but we did have higher costs, and I've touched on that a few times. I'm very pleased that we were able to deliver record sales volumes for the segment in this quarter, and we've got improved production stability at the cycle now. The thing in speciality segment on slide 14, as I said to you earlier, It's the segment that's probably been the most impacted by the high inventory levels. At the same time, we've had the unfavorable economic climate. Having said that, you know, we're obviously starting to see a recovery. And, you know, as we move into the new financial year, and that high inventory levels becomes a thing of the past, we are anticipating a good recovery there. It's an area of the business that we want to continue to invest in. And then on graphics, I talked about it up front. We are seeing a recovery, but it's not the V-shaped recovery. It's a gradual recovery in demand. Our orders keep picking up week by week, and we are not going to get back to – Previous levels, the kind of peaks that we got in 2022, things are looking better. And obviously, we had to take substantial curtailment across the group because of the lower demand. We did benefit from higher cost savings in the quarter. Here on page 16, I'm not going to go into a great deal detail, but Europe was obviously challenging because that's the region where we have the most exposure to the graphic paper markets. And from an economic perspective, it's the region that's experienced the toughest trading conditions. This North American business also faced tough economic challenges. with all the good work that we've done in recent years to reposition the business, we were able to deliver our second highest ever EBITDA. And then in South Africa, as I say, records profitability and, you know, obviously we've been making investments in recent years and those are paying dividends. in graphically, and it just reinforces what we say. You can see that in all instances, volume is up. And, you know, obviously in South Africa and North America, margins improve. Europe, we still face the challenges. And that's obviously why we announced the capacity closures that we have. Slide 18 talks to our strategic, These are longer-term objectives. There's a lot on the slide, so I'm not going to go through all of it, but just an ongoing focus on operational excellence. We want to continue to look for cost-saving advantages. In South Africa specifically, the forestry footprint, if we can expand on that, that will lower our cost base and put us in a stronger strategic position. Pulp integration is an important priority, particularly obviously in Europe where we're less pulp integrated. On enhancing trust, a strong focus on our certification, our science-based targets, our commitments in South Africa with regards to triple B, double E, and lowering our carbon footprint. All of these are priorities. We want to grow in the packaging and offsides. We've got projects underway at to basically move that machine across the levels and the Somerset PM2 expansion and conversion projects. And then on financial health, I've touched on it a number of times, but great progress towards our debt targets. The slide 19 talks about the same thrive pillars and specifically focuses on RHE for the year. Again, I'm not going to go through in great detail, but I think all the good stuff we did on procurement and from a cost perspective, you saw the benefits of that coming through in particularly in the latter part of the year. On enhancing trust, we committed to the science-based targets during the year, and we We continue to make progress on that front. is those same conversion projects at Somerset. First of all, in South Africa, we've got a pilot plant that's gone very well, and we're doing some engineering on that. And, you know, that's a potential future growth opportunity. And then in terms of sustaining our financial health, We repurchased some of the 26 bonds earlier in the year, repaid some Salaskan bonds, so further progress on that front. The next slide talks to our Somerset conversion project. We'd like to keep you updated. I'm pleased to say that it's progressing well within budget, on schedule, on track, and still a long way to go, but so far, so good and progressing well for the start of completion early in 2025. You can see some pictures on slide 21. We're very excited about the progress. Then on 22 is our sustainability targets. We obviously talk about our three P's, the people, prosperity, and planet. On the people front, Across the board, great progress. Safety, it was our best ever safety performance. In fact, it was our best in all regions. Lowest number of injuries, and it's a strong focus within the business. We continue to make progress on diversity. development on our targets for women in the senior positions. And then, as I said earlier, on , we thrilled that we're still a level one contributor. On the financial targets, obviously, with the lower profitability, we did not receive, achieve the rookie targets. We are focused on getting that back on track. On slide 23 is our sustainability planet targets. I need to stress to you all that this is a per ton target. So, because of the curtailment that we took during the year, the mills become less efficient. In absolute terms, we did come down, but on a per ton basis, We did miss our targets. However, as we fill the mills in the new financial year, we're confident that we'll get back on track in terms of those and ultimately achieve the targets that we've set ourselves. And that moves us into 2024. You know that we've got our science-based targets approved. Once again, the downtime that we took does have an impact because it's on a per-ton basis, but we are If we look at the progress that we're making, we are on track for our 2030 targets. Turning to the outlook and page 26, the demand continues to be impacted by the global macroeconomic situation. It's still there. We're not out of things. And it's difficult to pinpoint exactly. when it will be at an end, and clearly it's still going to affect our Q1 2024 numbers, but we are anticipating further improvement through the financial year. The graphic paper has experienced a permanent structural demand, and that's why we made the announcements to rationalize our capacity in Europe through the closure or stop that and the potential closure of Larnaken and why we're making the investments. We are at Somerset and Gratcom. Page 27, I need to call out that we have three big shuts in this quarter, Sycor, Ndudwana and Cloquet. Already Cloquet and Sycor are behind us and those are back to production. Ndudwana, we're in the middle of the shut. But just to remind you, at some of our bigger mills now, we've moved to an 18-month window for these shuts, and that's why Ndudwana and Cloquet both fall within this quarter. The impact of those big shuts is 40 million. So when you're comparing Q4 of 23 with Q1 of 24, you've got to take into account that 40 million impact on a quarter-by-quarter basis. I said already the 500 million . So I'm not going to go into more detail on that. So notwithstanding this, the economic situation that we face, the gradual recovery that's coming through, these shuts that I referred to, all in all, taking that all into account, we anticipate that the EBITDA for Q1 will be below that of Q4. Operator, that's me finished going through the presentation. I'm now going to hand it back to you for questions.

Thank you so much, dear participants. As a reminder, if you wish to ask a question, please press star 1-1 on your keypad and wait for it to be announced. To withdraw a question, please press star 1-1 again. This will take a few moments. And now we're going to take our first question, and it comes from the line of James Twyman from . Your line is open. Please ask your question.

Yes, thank you very much. Thank you for the presentation. I've got three questions to structuring in Europe, if I may. The first one is the Larnacan closure. You mentioned that that's going to cost you 150 million euros. Could you talk about how much of that is cash? and whether you think that's going to be in this financial year. That was my first question. The second one was you made a $52 million loss in Europe. How much of that is due to exceptional depreciation in the quarter? I think it sounds as though you sort of bunged the fourth quarters of depreciation into one quarter for the assets that you were planning to sell, but I'm not sure if that's the case. And then thirdly, on StockStat, the closure there, could you talk around or what you think will be the benefits to profits from the closure. Thank you.