Sappi results for 1st quarter in line with expectations Q1 2015

Johannesburg, 11 February 2015

Supporting documents


Financial summary for the quarter


  • Profit for the period US$24 million (Q1 2014 US$18 million)
  • EPS excluding special items 5 US cents (Q1 2014 2 US cents)
  • EBITDA excluding special items US$145 million (Q1 2014 US$147 million)
  • Net debt US$2,040 million, down US$340 million year-on-year

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


“Operating performance in the quarter was in line with expectations and the equivalent quarter last year. The group generated an EBITDA excluding special items of US$145 million, operating profit excluding special items of US$74 million and profit for the period of US$24 million.

“The Specialised Cellulose business continued to generate good returns during the quarter, with EBITDA excluding special items of US$70 million. US Dollar prices for dissolving pulp remain under pressure in all market segments due to excess market supply as well as the weak margins in the viscose staple fibre sector. The decline in cotton and polyester prices and large cotton reserves are compounding the pricing pressures. The weaker Rand/Dollar exchange rate has enabled the South African mills to maintain Rand pricing, while good variable and fixed cost control across the business is helping to maintain margins.

“In this seasonally slower quarter, the performance of the European business improved compared to that of the equivalent quarter last year. This was despite the €12 million cost and lost margin impact of the paper machine upgrade at the Gratkorn Mill. The European business benefited from lower fixed costs after the disposal of the Nijmegen Mill, higher average sales prices for coated woodfree paper as well as an improved performance from the specialities business at Alfeld. Profitability for the North American business was similar to that of the equivalent quarter last year despite a planned extended annual maintenance shut at the Somerset Mill and a number of completed capital projects. These negatively impacted the quarter by approximately US$10 million in additional expenses and lost margin compared to the equivalent quarter last year. The Southern African business had an improved performance this past quarter, with exchange rate gains on export sales and variable cost savings contributing positively.

“As discussed when reporting last quarter’s result, we are evaluating opportunities to utilise our cash resources to refinance a portion of our debt in order to lower future interest costs. We expect to reduce net debt levels by year-end to below those of the prior year.

“Currency movements affect margins in our European and Southern African businesses, having both transactional and translational effects. A weaker Euro and Rand in relation to the US Dollar support both local and export pricing for these businesses, historically offsetting any input cost increases as a result of the weaker currency.

“Our outlook for the year, based on current market conditions, is for the operating performance to be broadly similar to 2014. The expected improvement in the paper businesses will be offset by lower US Dollar dissolving pulp pricing and the projects at Gratkorn and Somerset Mills. In addition, at current exchange rates the translation of Euro and Rand results to Dollars may be negatively impacted compared to the prior year.


The quarter under review


In Europe the weaker Euro negatively affected US Dollar denominated variable costs, particularly for paper pulp, compared to the prior quarter. Conversely, paper exports benefited from the weaker Euro and largely offset the effect of the increased pulp costs. The quarter saw a further improvement in the operating and sales performance of the Alfeld speciality mill with a better product mix and average pricing level.

A planned extended annual maintenance shut and the completion of a number of capital projects in the North American business had a significant impact on costs resulting in an operating loss for the quarter. However, the underlying performance, particularly in the coated paper business, improved as a result of higher selling prices. In the current pricing environment, the decision to produce paper pulp for own consumption as well as dissolving pulp at the Cloquet pulp mill also enhanced profitability. The release business continues to be adversely affected by weak demand in China.

Pricing in European markets was also negatively impacted by the weaker Euro. Variable costs were generally flat with the prior quarter and lower than last year. Lower cost fibre, from use of own-make Cloquet pulp production, as well as lower starch and latex costs have offset higher wood costs resulting from low inventory levels in the supply chain.

The paper business in South Africa continues to show steady improvement, while the transition from graphic paper grades to packaging paper commenced during the quarter. Pricing improved for packaging grades while sales volumes were flat year-on-year, but lower than the prior quarter due to weaker specialities and office paper markets.

Net finance costs for the quarter were US$37 million, a reduction from the US$48 million in the equivalent quarter last year. Net debt of US$2,040 million is down substantially from US$2,380 million at the end of the restated 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. As previously announced, the net debt increased compared to the US$1,946 million as of the end of the prior quarter as a result of the seasonal increase in cash utilisation.

There were no major special items for the quarter. The net charge of US$5 million includes a self-insured mechanical failure at the Ngodwana mill. Earnings per share for the quarter were 5 US cents, compared with 3 US cents (including a gain of 1 US cent in respect of special items) in the equivalent quarter last year.



Graphic paper markets remain challenging, but appear to be marginally better than originally anticipated, in both Europe and North America. Generally, paper demand has declined at a lower rate and price expectations have been met. Exchange rate volatility may affect selling prices, particularly in Europe.

The dissolving pulp market is under further pressure, consistent with pressure on viscose, polyester and cotton. Prices in US Dollars have declined further than expected. The lower prices are likely to be substantially offset by a weaker Rand/Dollar exchange rate and our ability to swing the Cloquet pulp mill between dissolving pulp and paper pulp.

Capital expenditure in 2015 is expected to be below US$300 million and will focus largely on the efficiency improvement investments at our Kirkniemi and Gratkorn Mills.




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 Investor Info; Investor Calendar; 1Q15 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