Commenting on the group’s results, Sappi Chief Executive Officer
Steve Binnie said: “Within the context of subdued underlying market
conditions due to the challenging macroeconomic environment I am
pleased that the group delivered EBITDA of US$183 million, which
was 10% above the prior year.”
The increase was primarily due to an improvement from the pulp
segment and significant costs savings, which included a 9%
reduction in cash fixed costs following the closure of the
Stockstadt and Lanaken Mills in Europe. Included in EBITDA was a
positive plantation fair value price adjustment of US$3 million. A
modest recovery in global paper markets was also observed following
the extended destocking cycle in 2023.
Looking forward to Sappi’s third quarter, Binnie stated: “While
we expect a gradual improvement in paper markets there will be a
reduction in output due to a number of planned maintenance shuts in
the quarter. We therefore anticipate that EBITDA (excluding a
slightly negative fair value price adjustment) for the third
quarter of FY2024 will be below that of the second quarter but
substantially above last year.”
Financial summary for the
quarter
- EBITDA excluding special items US$183 million (Q2 FY23
US$167 million)
- EPS excluding special items 12 US cents (Q2 FY23 11 US
cents)
- Net debt US$1,366 million (Q2 FY23 US$1,225
million)
- Closure of Stockstadt and Lanaken Mills completed
Dissolving pulp (DP) demand was strong throughout the quarter
boosted by a tight supply landscape, low downstream inventory
levels and high viscose staple fibre (VSF) operating rates
following the Chinese Lunar New Year celebrations. Sales volumes
for the pulp segment increased by 2% year-on-year and hardwood DP
spot prices closed the quarter higher at US$940/ton. Profitability
for the segment was further supported by significant cost savings,
particularly for wood and chemicals.
Packaging and speciality papers demand rebounded during the
quarter. Sales volumes improved by 9% compared to the prior year
with a mixed performance across the regions. Selling prices came
under significant pressure in the second half of FY2023 and were
13% below the prior year. Cost savings were insufficient to offset
the negative impact of lower selling prices and profitability for
the segment declined compared to last year.
The gradual recovery of graphic papers demand continued
throughout the quarter as downstream value chain inventories
normalised causing sales volumes to increase by 7% compared to the
prior year. However, there has been a structural decline in demand
from the highs of 2022. The combination of increased sales volumes
and cost savings facilitated a year-on-year improvement in
profitability for the segment.
Profitability of the European business continued to recover
slowly from the lows of the second half of FY2023. The improvement
was driven by increased year-on-year sales volumes and cost
savings, offset to some extent by selling price reductions across
all product categories. A notable increase in capacity utilisation
was achieved due to the successful transfer of Stockstadt and
Lanaken sales volumes to our other assets following the termination
of production at both mills in the prior quarter. Variable costs
were 16% below last year driven by lower purchased pulp and wood
costs. However, variable costs increased from the prior quarter on
the back of rising pulp prices which were boosted by supply
disruptions in Europe due to the Finnish port strikes and
mechanical failures at a number of European pulp mills. Fixed costs
were 17% below the prior year due to the strategic restructuring of
the European business.
The North American business delivered a good performance despite
a slower than expected recovery in demand for graphic paper. A
strong increase in paperboard sales volumes combined with cost
savings offset lower selling prices for packaging. Variable costs
were 9% below last year with savings achieved for all major input
categories. Fixed costs were 5% above the prior year primarily due
to higher personnel costs.
The South African business delivered a solid performance with
profitability benefiting from significant cost savings and a ZAR56
million forestry fair value price adjustment. Variable costs were
7% below the prior year due to lower wood, chemical and delivery
costs. Fixed costs were well managed with a year-on-year increase
of 6%.
Outlook The third quarter is
seasonally the weakest in terms of demand for our products.
However, market sentiment is generally improving across all of our
product segments and Sappi is well positioned with healthy cash
reserves and liquidity to manage current market uncertainties.
Dissolving pulp demand remains healthy, buoyed by low inventory
levels across the VSF value chain. VSF pricing has faced downward
pressure in recent weeks, which could be a risk for DP pricing in
the third quarter. However, the high operating rates through the
VSF value chain and relatively constrained DP supply landscape
continue to offering some support for DP prices.
Graphic papers demand is expected to continue its slow recovery
in the third quarter, but the market fundamentally remains in
oversupply and industry operating rates remain below historical
levels. Our European restructuring programme has significantly
increased our capacity utilisation which, combined with the fixed
costs savings, is expected to improve our competitive position. We
continue to diligently adapt our product and market mix to match
demand in North America ahead of the Somerset PM2 conversion and
expansion in 2025. The sale of the Stockstadt Mill site is on track
to be concluded in the third quarter.
Packaging and specialty paper markets continue to improve across
all regions, and we expect good demand in North America and South
Africa. However, market conditions in Europe generally remain
subdued due to the persistently weak economy and low consumer
confidence.
Variable costs have reduced substantially from the peak in 2023
but have plateaued in the second quarter and remain above
historical levels for many of our input categories. Globally, pulp
market prices have started rising which could negatively impact the
profitability of our paper businesses, particularly in Europe where
proactive margin management will be required. In the third quarter,
the Saiccor and Somerset Mills will take scheduled maintenance
shuts, which will have an estimated impact of US$30 million on
group profitability.
Capital expenditure for FY2024 is expected to be in the region
of US$500 million and as previously communicated includes
approximately US$154 million for the Somerset PM2 conversion and
expansion project. We remain committed to disciplined capital
allocation as we execute our strategy to reduce exposure to graphic
paper markets while investing for growth in renewable packaging,
dissolving pulp and biomaterials.
The plantation fair value price adjustment for the third quarter
is expected to be slightly negative due to higher fuel costs and
discount rates.
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.
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 COVID-19 pandemic;
- 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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240509827440/en/
André F Oberholzer Group Head Corporate Affairs Sappi Limited
Tel +27 (0)11 407 8044 Mobile +27 (0)83 235 2973
Andre.Oberholzer@sappi.com Tracy Wessels Group Head Investor
Relations and Sustainability Sappi Limited Tel +27 (0)11 407 8391
Mobile +27 (0)83 666 6589 Tracy.wessels@sappi.com Issued by
Brunswick on behalf of Sappi Limited Tel + 27 (0) 11 502 7300