Sappi first quarter profits triple on significantly stronger performance

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Johannesburg, 10 February 2016


Sappi first quarter profits triple on significantly stronger performance.


Financial summary for the quarter

  • Profit for the period US$75 million (Q1 2015 US$24 million)
  • EPS excluding special items 13 US cents (Q1 2015 5 US cents)
  • EBITDA excluding special items US$175 million (Q1 2015 US$145 million)
  • Net debt US$1,734 million, down US$306 million year-on-year

Commenting on the result, Sappi Chief Executive Officer Steve Binnie said:

“Operating performance in the quarter was strong and substantially above the equivalent quarter last year. The group increased EBITDA excluding special items by 21% to US$175 million, operating profit excluding special items by 51% to US$112 million and profit for the period by 213% to US$75 million.

“The Specialised Cellulose business continued to generate good returns during the quarter, with EBITDA excluding special items of US$74 million despite the impact of a severe drought in South Africa which had a negative impact of US$6 million on these results. US Dollar spot prices for dissolving pulp increased for most of the quarter. However, as the quarter ended, lower textile prices and the weaker Chinese RMB placed pressure on our viscose staple fibre customers. The weaker Rand/Dollar exchange rate led to increased Rand prices.

“The European business delivered a satisfactory performance, close to the targeted EBITDA excluding special items margin. Price increases in the past year, excellent variable and fixed cost control and the transfer of volumes from Metsä’s Husum Mill all contributed positively to results. Profitability for the North American business was higher than that of the equivalent quarter last year due to a recovery in our coated paper sales volumes, the stabilisation of selling prices and lower variable costs. In addition, the comparative quarter was negatively impacted by an extended annual maintenance shut at our Somerset Mill. Profitability for the paper business in South Africa progressed further in this quarter, notwithstanding the sales of the Cape Kraft and Enstra Mills. Higher selling prices for packaging grades offset raw material cost pressures from the weaker Rand.

“We expect the second quarter EBITDA to be in line with the first quarter and slightly ahead of the equivalent quarter last year. The quarter will be impacted by an extended annual maintenance shut at our Ngodwana Mill in South Africa and the annual maintenance stoppage at Saiccor which traditionally occurs in the third quarter. The total scheduled maintenance work in the group will negatively impact the quarter by approximately US$12 million when compared to the equivalent quarter last year.

“Based on current market conditions, and assuming current exchange rates, we expect that EBITDA excluding special items in the 2016 financial year will be higher than 2015. As a result of improved operating profits and lower expected finance costs, offset somewhat by increased tax charges, we expect strong growth in our earnings.”


The quarter under review

The performance of the European business improved compared to both the prior quarter as well as that of the equivalent period last year, a quarter which was negatively impacted by €12 million due to the upgrade of the paper machine at Gratkorn. The specialities market experienced a weak period through to November, however orders recovered strongly in the last month and sales volumes for the quarter were nonetheless substantially higher than those of a year ago.

The US coated paper market remained under pressure as a result of the strong US Dollar. This led to a surge in coated paper imports and, more importantly, a large decline in exports. However, our market share gains from other domestic producers led to sales volumes that were higher than in the equivalent quarter last year. Sales prices held, quarter-on-quarter, but were 3% below those of the equivalent quarter last year. The release business continues to be adversely affected by a weak patterned textile market in China. Sales prices improved compared to the equivalent quarter last year due to price increases implemented during 2015.

The Southern African business continued to enhance margins, as a result of higher net selling prices for dissolving pulp and paper. Margins were further boosted by the weaker Rand. The improvement in the paper business was due to the realisation of higher local selling prices and, despite pressure on raw material prices from the weaker Rand, a tight control of costs. Demand for containerboard continues to be robust. During the quarter the sales of the Cape Kraft and Enstra Mills were completed.

Net finance costs for the quarter were US$25 million, a reduction from the US$37 million in the equivalent quarter last year. Net debt of US$1,734 million is down substantially from US$2,040 million at the end of the equivalent quarter last year as a result of the strong cash generation in the past financial year and the translation benefit of the weaker Euro on the Euro denominated debt.

Special items for the quarter resulted in a gain of US$11 million and relates principally to a profit on the sale of the Cape Kraft Mill. Earnings per share excluding special items for the quarter were 13 US cents, a substantial improvement over the 5 US cents in the equivalent quarter last year.

During the quarter we announced the retirement of Dr Danie Cronjé as independent Chairman of the board at the end of February 2016. Sir Nigel Rudd, currently the lead independent director, will succeed Dr Cronjé as independent Chairman of the company with effect from 01 March 2016.


The Specialised Cellulose business is benefiting from higher average US Dollar prices for dissolving pulp and, for our South African mills, the added benefit of a weaker ZAR/US Dollar exchange rate. US Dollar spot prices for dissolving pulp have come under pressure since December 2015 due to lower textile prices and a weaker Chinese currency. Demand remains strong and we remain confident that, at current pricing levels and exchange rates, the outlook for this business is positive.

In North America, graphic paper is performing solidly in a difficult and competitive environment, which is being impacted by the strength of the US Dollar. Variable costs are reducing and sales volumes have improved after a particularly difficult third fiscal quarter in 2015. The European business is improving due to actions we have taken to reduce costs and enhance returns over the past few years. Strong demand for fruit exports, a key market for our packaging products, is supporting South African growth.

Capex in 2016 is expected to be in line with 2015 and is focused largely in energy and debottlenecking projects in South Africa, together with the annual maintenance at the mills.  Depending on market conditions, we are considering utilising some of our cash reserves to repay and refinance a portion of our debt in order to lower future interest costs. We expect to reduce our net debt further over the course of the year and reduce our financial leverage closer to our targeted ceiling of two times net debt to EBITDA.


The full results announcement is available at

There will be a conference call to which investors are invited. Full details are available at using the links Investors; Investor Calendar; 1Q16 Financial Results


Forward-looking statements

Certain 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 of or 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, and may be used to identify forward-looking statements. You should 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 actual results, 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 raw material, energy and employee costs, and pricing);
  • the impact on our business of a global economic downturn;
  • 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 restructuring and 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.


Issued by


on behalf of Sappi Limited

Tel + 27 (0) 11 502 7300


For further information


André F Oberholzer

Group Head Corporate Affairs

Sappi Limited

Tel +27 (0)11 407 8044

Mobile +27 (0)83 235 2973


Graeme Wild

Group Head Investor Relations and Sustainability

Sappi Limited

Tel +27 (0)11 407 8391

Mobile +27 (0)83 320 8624