Blog Post

Sappi Limited Delivers Solid Profit during Fiscal Third Quarter

(Johannesburg, Aug. 3, 2017) Sappi Limited today provided a financial summary for the quarter ending June 2017 (the company’s fiscal third quarter):
Profit for the period US$58 million (Q3 2016 US$32 million)
Net debt US$1,318 million, down US$265 million year-on-year
EPS excluding special items 11 US cents (Q3 2016 11 US cents)
Commenting on the group’s performance, Sappi’s Chief Executive Officer, Steve Binnie, said, “I am pleased to report that during the past quarter Sappi delivered profits up 81% from a year ago and reduced debt by a further 17% (US$265 million) year-on-year. We also repaid US$400 million in bonds from cash reserves which will generate savings of approximately US$21 million per annum on our net interest charge.
“Sappi’s third quarter is seasonally and historically its weakest quarter due to the slow-down in business activity during the Northern Hemisphere summer holiday period and Sappi’s choice to use this quarter to undertake major annual maintenance shuts. The past quarter’s earnings (EBITDA ex special items) at US$155 million where almost flat on a year ago. Higher volumes were offset by higher raw material prices and a stronger Rand/Dollar exchange rate.
Based on current market conditions, including higher paper pulp prices and the current Rand/Dollar exchange rate, we expect the group’s fourth quarter operating performance to be slightly below that of last year. The full year result is likely to be above that of the prior year.”
The period under review
The specialised cellulose business delivered higher sales volumes and higher average Dollar selling prices compared to the previous year driven by healthy demand and higher viscose staple fibre prices in the Chinese market.
In Europe, the specialty packaging business continued to achieve strong sales growth and profit margins while the graphics paper business partially achieved price increases announced in April. However, higher raw material prices contributed to a reduction in profitability compared to the prior year.
In the US, the benefits of higher dissolving wood pulp (DWP) volumes and pricing compared to last year in addition to increased packaging and coated paper sales volumes were offset by the ongoing weakness of coated paper prices. The success of cost containment programmes and efficiency gains led to a constant year-on-year result.
The packaging paper business in South Africa had another positive quarter with higher sales volumes. Costs in the quarter were impacted by the planned annual maintenance shut at Ngodwana Mill and replacement of economiser tubes at Saiccor Mill.
Our projects to increase capacity of specialty packaging in Europe and North America are progressing as planned. During the quarter capital expenditure of US$78 million was related mainly to these projects along with the next phase of the DWP debottlenecking projects at Ngodwana and Saiccor Mills. These projects will contribute increased volumes in our high growth business segments.
Outlook
DWP prices declined throughout the third quarter and reached a recent low at the end of June. Prices have subsequently moved upwards in July following a similar trend in viscose staple fibre. The bulk of our DWP sales prices are based on the prior quarter average price and we can therefore expect lower pricing for the fourth quarter than that achieved in the past quarter. Longer term market dynamics appear favourable, with demand growth expected to exceed supply growth in the next two years.
In Europe, local demand for graphic paper has stabilised somewhat and export markets have experienced strong growth. In contrast, markets remain difficult in the United States. Coated paper price increases have been announced in most major markets, which should help offset rising raw material costs.
Demand for specialty packaging continues to grow, and the conversion of the paper machines at Maastricht and Somerset Mills are set to be completed in the second and third fiscal quarters of 2018 respectively. This will further boost production capacity in these grades.
Capital expenditure in the last quarter is expected to be approximately US$170 million. This includes the next phase of the DWP debottlenecking project at Ngodwana Mill, the Somerset Mill wood-yard and the initial phases of the specialty packaging conversions at Maastricht and Somerset Mills.
We expect to reduce net debt further in the coming quarter through positive cash generation. However, a significant proportion of our debt is denominated in Euros and a stronger Euro/US Dollar exchange rate negatively impacts the translation of this debt.
The full results announcement is available at www.sappi.com (Source: Sappi Limited)

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