Sappi Ltd S/Adr

Good day, everybody. Thanks for joining us for the results call. As always, I'll go through the investor presentation, which has been made available to you. I will call out the page numbers as I move through it. I'm going to start on page three, which has got some of the highlights for the quarter. All in all, a satisfactory quarter in line with the expectations, in line with the guidance that we provided. I think we're making good progress year on year, EBITDA up 40%, so obviously we've continued the recovery from the lows of last year. In terms of the segments themselves, and we will go into a little bit more detail, but on the pulp side, strong market conditions, good demand, and further upward movement in pricing. Paper side, muted recovery. Packaging volumes continue to increase, and we would expect to see more of that as we move forward. Graphics seems to be leveling off now at a new level. Obviously, post the declines that we've seen in the last couple of years, it seems to be leveling off, albeit that we know that seasonally Q4 is a stronger quarter than Q3. Please to say that the sale of the stock that mill was concluded in the quarter. We had proceeds of 49 million US. And all in all, the net cash generated for the quarter was 32 million, which is pleasing for us. Slide four has the EBITDA, sorry, the product contribution splits. And obviously, this is a longer term trend line. The big story is obviously on the right hand side that We continue to reduce exposure to graphics. We're below 50% now, being graphics. And obviously, we've got a couple of projects underway which will take that even lower. And I've talked about this before. Probably by the time we get to 2027, the target is to get that below 30%. Increasing contributions from our higher growth margin segments the EBITDA a little bit fluctuations or you can see in times with the macroeconomic conditions and specifically in the in the quarter Obviously on the packaging side. We had the big Somerset shot which would have impacted on the contribution from packaging moving to page five The bridge earnings last year relative to this year. I mean, firstly, recovery in volumes, particularly, obviously, in the paper segments, which has contributed to that. We did see some negative pricing and mix. The pricing, mainly in the packaging segment, where we did see somewhat downward pressure. you know, in pulp, as I said, positive. Savings in variable costs coming through, albeit that pulp, and all of you will know this, that paper pulp prices have been higher in recent quarters, albeit they've just started to come down again. Adding some fixed adjustments relative to last year associated with the shut. I'm giving us the EBITDA of 151 that you seen quarter on quarter. Moving to the input costs and this is a three year trend line. Obviously off the highs in 2022 we saw declines in costs, but then more recently pulp rising. And the other category is relatively flat, all in 2% quarter on quarter increase in variable costs. As I said, pulp is leveling off. And in fact, we're anticipating pulp to start coming down again. But most of that benefit will, because there's a bit of a time lag, will be felt in the new financial year. Page 7 has our leverage over time and our net debt levels. As I said earlier, positive move in net debt on the quarter. Obviously, we're higher than a year ago because we had to fund the expansion and conversion project at Somerset. And then more recently, we had the closure at Larnacan. So we had to fund those, but a strong focus on getting that debt number back down to close to the billion dollar level. Moving to slide eight has our debt maturity profile. Some change, obviously, relative to the last quarter. Perhaps the largest sizable refinancing or maturity is on our 2026 euro bonds. There's 240 million outstanding. We obviously continue to monitor. Just obviously, when we did issue those bonds, it was at a level of 3.125%. So it's very favorable. So keeping it running a little bit longer does help. And it's a big maturity, but it can be managed. We will pick the optimal time for that. Then moving to slide nine, just looking at the cash flow from a generation perspective. Obviously, in the current year, the free cash flow continues to be healthy. Obviously, at the bottom line, negative, but that's linked to what I talked about earlier, the capex. and the closure of Laniken. And obviously, we did clear the dividend in the current year. CapEx, we've guided down a little bit relative to the last quarter. We brought it down to 480. Some of the projects that we were undertaking, we've deferred into next year because they don't have an impact on operations. The biggest part of it is Somerset. that's on track. So under control and no surprises in the number. Page 10, we continue to be disciplined in our capital allocation with a strong focus on getting the debt back close to a billion. We've got to see through the Somerset project, which is going well. You know, thereafter, we haven't committed to any other major capex. So we will start generating cash when that project is completed. We obviously reduced exposure to graphics with the two mill closure stock that and Lanican on the pod side. We we we are. We've made the investments in grout corn to give us wet strength label. capabilities that will be finished in September and the Somerset expansion conversion which will be finished in April next year. The net effect of those two is effectively like taking two mills, two machines out of Coated Wood Free and obviously pushing us into higher margin, higher growth segments. on top of that Somerset giving us the extra volume so there will be growth on the top line associated with that too. Moving to segmental overview and page 12 the pulp segment you know within that obviously the main driver is dissolving pulp as I said favorable conditions strong demand no new supply coming prices favorable So we are feeling pretty good about the market conditions there. It's a tight market. Offsetting that BCTMP, you know, we sell some tons into the BCTMP market from Matan. That market has been tougher. And that's what impacted on the margin. Having said that, just remember when we complete the SICOR, sorry, the Somerset conversion, we are going to be supplying additional bctmp to the to the cycle mill so we're going to be less exposed to external markets we did we also did have the matan shut in the quarter actually which also impacted uh on margin and we had a cycle which which impacted moving to packaging um Obviously, there was a big drop in margin from what we've seen recently, but we had the 18-month extended shut at Somerset, which would have impacted. And at the same time, we did have some production issues at Somerset, not linked to the shut itself. Those impacted on volumes, they're now behind us and we're feeling good about the prospects in North America for the fourth quarter. Europe, mixed. Obviously, it's still difficult in Europe. The economy is still challenging, but there are pockets of improvement and we called out two there on the slide, labels and self-adhesives. The labels is good obviously because we're getting close to the completion of the project at Gratcon. In South Africa, generally good. The container board demand was a little bit worse than we had thought it was going to be, but underlying demand continues to be strong. Then on graphics, on page 14, as I said, we have seen recovery. um from the very lows of last year but it now it now feels like it's leveling off uh we will have a little bit of seasonal benefit in q4 but it does look like it's leveling off at around the 500 000 ton mark per quarter um a little bit micro negative macro economic factors at play but uh i i don't think we're going to get much substantial improvements from here Having said that, obviously, because of Somerset us taking out that capacity when we complete the conversion, that will reduce our exposure. Similarly, at Gratcorn and, you know, Posters closing the two mills earlier this year, you know, we're relatively full there. So the margins actually at 9% are reasonably healthy and at normalized levels. Turning to page 15, the product segments, sorry, the geographic segments. Well, firstly, I'm obviously pleased that the volumes are positive in each of the regions year on year. But I did call out, obviously, graphics leveling off now. Selling prices, we did see a little bit of negative pressure in the packaging segment. And that's what impacted the numbers in the European and North American regions. The margins, South Africa healthy. North America obviously impacted by the the summer set shut, but should get back to normal levels. And then, as we've called out, the European is lagging. But hopefully, some improvement will come through as the packaging and spatiality improves moving forward. And you see all of this graphically on page 16. so yeah i'm not going to repeat it but you can see that healthy in in south africa a little bit down in north america but recovery coming and then u.s still subject sorry europe still subdued Then on to slide 17, the Thrive strategy that we have. We shared this with you many times. It doesn't change quarter by quarter. We continue to focus across the four pillars. On the operational excellence, obviously very pleased with the progress that we made. And after closing Larniken and Stockstart, moving that volumes across. That improves our operating rates in the coated wood-free machines in Europe. And then across each of the regions, a strong focus on maximizing production. In South Africa, we continue to look for opportunities to increase our forestry. footprint. These are not material acquisitions but we continue to look for opportunities and we added a couple of acquisitions and that's in the CapEx numbers that you've seen. The Enhancing Trust firstly sees that we maintained our level 1 BE compliance. We think our sustainability positioning puts us in a a strong competitive space. And as I've talked about previously, we've probably got about 60 to 70 million over the next few years to continue to improve on our environmental footprint. The growth of the business, in the short term, it's built around the two projects that we've got at Gratcon and Somerset. And as you heard earlier, those are going well. And then in terms of sustaining our financial health, committed to getting that debt back downwards post the Somerset project. And as I say, we haven't committed any large capital beyond that. Slide 18, moving on to sustainability. Very proud that we got another Ecovirus Platinum Award across All three manufacturing regions getting the highest rating, six consecutive year, ranks us in the top 1% in our segment. Then moving to the outlook, which is on slide 20. It's fair to say that there's still challenging macroeconomic conditions out there. Interest rates are high, but hopefully they will come off at some point. But there is volatility out there. DP markets, I've talked about a couple of times on the call, still favorable conditions. On the graphic side, a little bit of seasonal recovery, but as I say, we're probably at the new normalized levels after the recent volatility of the last two years. Packaging markets continuing to feeling very good about North America and South Africa. Europe lagging, but we are seeing certain categories, as I said earlier, showing positive signs. On the cost side, chemical costs, there could be a little bit of inflation coming through. But on the positive side, it does look like pulp prices may have peaked. And they are expected to reduce in coming months which will benefit our paper business in the new financial year. Slide 21, we continue to focus on margin management, obviously taking into account our costs and ensuring that we can protect margins. The guidance for Q4, well, firstly, we have the plantation fair value adjustment. There was a a very recent reduction in wood prices in South Africa, which means you're going to have a negative fair value adjustment in the fourth quarter, which offsets much of the positive from earlier in the year. Taking that out of it, we anticipate that the EBITDA for the fourth quarter will be above the same quarter of last year. So further progress on our road to recovery and feeling positive about the quarter. Operator, that's me gone through the presentation. I'm going to hand it now back to you for questions.

Thank you so much, dear participants. As a reminder, if you wish to ask a question, please press star 11 on your telephone keypad and wait for a name to be announced. To withdraw a question, please press star 11 again. Please stand by. We'll compile the Q&A roster. 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 Perseant. Your line is open. Please ask your question.

Yes, hello. Thank you very much for the presentation. I've got three short ones, if I may, just to kick off with. The first one is in terms of capex, where do you see that in next year? Do you think that'll be similar to this year or maybe a bit higher or lower, just given that the Somerset expansion cost is still going to be fairly similar? Secondly, is there any restructuring cash flow in Q4, either positive or negative? I can't see anything substantial. Seems either to be in Q3 that we've had or coming in Q1. And then are there any further energy credit possibilities? Others have had them. You obviously got a big one in Q1 this last year, but just wonder if there's anything else that you could get there. Thank you.