Sappi profits double for 2nd quarter and half-year ended March 2016

Johannesburg, 09 May 2016 

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Highlights for the quarter


  • Profit for the period US$100 million (Q2 2015 US$56 million)
  • EPS excluding special items 16 US cents (Q2 2015 11 US cents)
  • EBITDA excluding special items US$195 million (Q2 2015 US$170 million)
  • Net debt US$1,652 million, down US$264 million year-on-year

Commenting on the result, Sappi Chief Executive Officer Steve Binnie said:
“Our strategy to reposition Sappi as a profitable and cash-generative diversified woodfibre group remains well on track. The strong quarterly growth in our EBITDA excluding special items continues with an increase of 15% over the prior year to US$195 million.” Turning to the second half of the year, Binnie commented: “Based on current market conditions, and assuming current exchange rates, we expect the growth in the second half EBITDA excluding special items to be in line with that of the first half of the year.  As a result of improved operating profits and lower expected finance costs, offset somewhat by increased tax charges, we expect a strong increase in our earnings.”


The period under review:
Profit for the period increased by 79% from US$56 million to US$100 million and for the half-year by 119% from US$80 million to US$175 million.


Operating profit excluding special items was up 28% to US$133 million. Earnings per share excluding special items for the quarter were 16 US cents, a healthy improvement over the 11 US cents generated in the equivalent quarter last year. The improvement was attributable mainly to higher dissolving pulp sales volumes and prices, savings from cost containment initiatives and lower finance charges. The strong operating performance in the quarter occurred despite the US$10 million adverse impact of planned maintenance shuts across the group when compared to the equivalent quarter last year.


The Specialised Cellulose business improved during the quarter, with EBITDA excluding special items of US$94 million, despite the annual maintenance shuts which occurred at both Ngodwana and Saiccor Mills during the quarter.  Average US Dollar prices in the quarter were higher than both, those of the prior quarter and the equivalent quarter last year due to higher average Chinese spot prices for dissolving pulp.  The weaker Rand/Dollar exchange rate led to increased Rand prices.


The European business delivered another satisfactory performance, with stable sales volumes and higher selling prices, aided by good variable and fixed cost control.


Increased sales volumes and lower variable costs more than offset a decline in average sales prices for the North American business when compared to the equivalent quarter last year.


The paper business in South Africa was impacted negatively by the extended annual maintenance shut at Ngodwana Mill, which commenced in March.  The later onset of the citrus picking season also delayed some containerboard sales destined for the agricultural market.  Higher sales prices offset variable cost increases, driven primarily by a weaker Rand/Dollar exchange rate.


Net debt of US$1,652 million is substantially lower than the US$1,916 million at the end of the equivalent quarter last year as a result of strong cash generation in the past financial year and the translation benefits of the weaker Euro on the Euro denominated debt. Since quarter-end we have completed the refinancing of our 2021 bonds. This will result in a reduction in the interest charge of approximately US$8 million per annum going forward.


The performance of the European business improved compared to both the prior quarter as well as the equivalent period last year. Coated woodfree markets were relatively stable and sales volumes and selling prices were higher than a year ago. The specialities market improved in the quarter, and sales volumes for the quarter were up 19% year-on-year.


The US coated paper market remained challenging, particularly for lightweight web (reels) products. However, strong sales of heavyweight web (reels) products resulted in higher overall paper sales volumes. The casting release paper business experienced improved sales volumes in China, particularly after the Chinese New Year.


Net cash generated for the quarter was US$90 million, compared to the US$82 million generated in the equivalent quarter last year.  This increase was as a result of the improved operating performance and lower finance costs, offset somewhat by a rise in working capital.  Capital expenditure in the quarter of US$45 million was in line with the equivalent quarter last year.

Special items for the quarter resulted in a gain of US$22 million, related mainly to a plantation fair value price adjustment.




The Specialised Cellulose business has benefitted from rising US Dollar sales prices for dissolving pulp over the past year.  Spot prices peaked in November 2015, declining through to February and have since partially recovered.  Our expectation is for US Dollar spot prices to remain fairly stable for the remainder of the financial year but, for our South African mills, there will be the added benefit of a weaker Rand/Dollar exchange rate when compared to the prior year.  Demand remains positive and we remain confident that, at current pricing levels and exchange rates, the outlook for this business is positive.


In North America, our graphic paper business is performing solidly in a difficult and competitive environment which is being impacted negatively by the strength of the US Dollar and the weak publication paper market.  Variable costs have reduced significantly over the past year and sales volumes are stable heading into a seasonally slow third quarter.  Our European business continues to improve with reasonable operating rates and lower variable costs. However, graphic paper markets have softened in recent months.  The outlook for the specialities market in Europe remains positive, with growth of 3% in our key product categories expected in the coming year.   The large exposure to the export market through our South African agricultural containerboard sales is driving good sales volumes in a weak ZAR exchange rate environment.


Capex in 2016 is expected to be in line with 2015 and is focused largely on energy and debottlenecking projects in South Africa together with the annual maintenance at the mills.


We expect to reduce our net debt further over the course of the year and improve our financial leverage closer to our target of less than two times net debt to EBITDA.



The full results announcement, summary table and second quarter Fact Sheet are available

There will be a conference call to which investors are invited. Full details are available using the links Investors; Investor Calendar; Q2 2016 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, identify forward looking statements. In addition, this document 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. 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 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;
  • 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