Johannesburg, 03 August 2017
Sappi pays down debt further and delivers solid profit during third quarter
Financial summary for the quarter to end June 2017
- Profit for the period US$58 million (Q3 FY16: US$32 million)
- Net debt US$1,318 million, down US$265 million year-on-year
- EPS excluding special items 11 US cents (Q3 FY16: 11 US cents)
Sappi Chief Executive Officer Steve Binnie, commenting on the group’s performance, said:
“I am pleased to report that during the past quarter Sappi delivered profits up 81% from a year ago, 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 speciality 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 speciality 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.
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 speciality 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 speciality 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
There will be a conference call to which investors are invited. Full details are available at www.sappi.com using the links Investors; Latest financial results.
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.
on behalf of Sappi Limited
Tel + 27 (0)11 502 7300
For further information
André F Oberholzer
Group Head Corporate Affairs
Tel +27 (0)11 407 8044
Mobile +27 (0)83 235 2973
Group Head Investor Relations and Sustainability
Tel +27 (0)11 407 8391
Mobile +27 (0)83 320 8624