Wrap Text
Results for the third quarter ended June 2024
Sappi Limited
Registration number: 1936/008963/06
JSE code: SAP
ISIN code: ZAE000006284
Issuer code: SAVVI
("Sappi" or "the Group")
Results for the third quarter ended June 2024
Quarter ended Nine months ended
% %
US$ million Jun 2024 Jun 2023 Change Jun 2024 Jun 2023 Change
Sales 1 370 1 326 3% 3 994 4 428 -10%
EBITDA excluding special
items 151 106 42% 490 563 -13%
Profit for the period 51 40 28% (46) 299 N/M
Net debt 1 340 1 176 14% 1 340 1 176 14%
Headline EPS (US Cents) 7 7 0% (8) 53 N/M
Basic EPS (US Cents) 9 7 29% (8) 53 N/M
EPS excluding special items
(US Cents) 9 5 80% 30 46 -35%
Net asset value (US Cents) 405 446 -9% 405 446 -9%
Dividend per share (US cents) - - N/M - - N/M
N/M - Not meaningful
Sappi is a leading global provider of everyday materials made from woodfibre-based
renewable resources. As a diversified, innovative and trusted leader focused on sustainable
processes and products, we are building a more circular economy by making what we should,
not just what we can.
Our raw material offerings (such as dissolving pulp, wood pulp, biomaterials and timber) and
end-use products (packaging papers, speciality papers, graphic papers, casting and release
papers and forestry products) are manufactured from woodfibre sourced from sustainably
managed forests and plantations, in production facilities powered, in many cases, with bio-
energy from steam and existing waste streams.
Together with our partners, Sappi works to build a thriving world by acting boldly to support
the planet, people and prosperity.
Commentary on the quarter(1)
Operating performance for the third quarter was substantially above last year with the group
delivering EBITDA(2) excluding special items of US$151 million. Despite the third quarter being
seasonally the weakest for our business and a sluggish global economy, the underlying
profitability, excluding a US$30 million impact of the scheduled maintenance shuts at Saiccor
and Somerset mills, remained steady quarter-on-quarter. The performance was driven by
sustained strong market conditions in the pulp segment, offset somewhat by a muted recovery
in paper markets. Included in EBITDA was a positive plantation fair value price adjustment of
US$3 million.
Globally consumer sentiment showed signs of improvement as inflation continues to subside,
which provided a boost for packaging and textile markets. However, graphic papers markets
generally remained subdued with the recovery post the destocking cycle of 2023 slowing
during the quarter.
Market conditions for dissolving pulp (DP) continued to be favourable, supported by tight
supply and strong demand, which was enhanced by high downstream viscose staple fibre
(VSF) operating rates and low inventory levels. The hardwood DP spot market price was stable
during the quarter rising by US$2/ton to end the quarter at US$942/ton. Pulp sales volumes
declined by 5% compared to the prior year and quarter. This was driven by low inventory
levels at the beginning of the quarter and lower external high yield pulp(3) sales due to the
scheduled annual maintenance shut at the Matane Mill. DP sales volumes and USD pricing
were roughly in line with the prior year and quarter.
Graphic papers sales volumes increased by 13% compared to the very weak performance of
last year, which supported a substantial year-on-year improvement in profitability for the
segment. However, the gradual market recovery following the destocking cycle of last year
slowed during the quarter as underlying demand continues to be suppressed by global
macroeconomic challenges and a likely shift in consumer behaviour following the Covid-19
pandemic. Escalating costs also impacted margins compared to the prior quarter.
The packaging and speciality papers segment experienced a challenging quarter. Paperboard
demand in North America rebounded during the quarter, but selling prices came under
pressure and the region was further negatively impacted by the scheduled Somerset Mill
maintenance shut. European demand also improved, albeit off of a low base. Market sentiment
showed modest signs of recovery, particularly in the label and self-adhesive categories.
Containerboard demand in South Africa was negatively impacted by a weaker than forecasted
citrus fruit season due to adverse weather events. Despite these headwinds, sales volumes
were 22% above the prior year and improved by 10% quarter-on-quarter. The positive sales
volumes momentum was offset by rising costs and declining prices which negatively impacted
profitability of the segment.
Earnings per share excluding special items for the quarter was 9 US cents, well above the 5
US cents in the prior year. Special items decreased earnings by US$3 million.
CASH FLOW AND DEBT
Net cash generated for the quarter of US$32 million was an improvement on the prior quarter.
A positive working capital inflow of US$44 million and the proceeds of US$49 million for the
sale of the Stockstadt Mill land was partially offset by a cash outflow of US$61 million for the
closure and restructuring of the Lanaken Mill. Capital expenditure of US$108 million was in
line with phasing expectations for the Somerset PM2 conversion and expansion project.
Positive cash generation supported a quarter-on-quarter reduction in net debt of US$26 million
to US$1,340 million. Liquidity comprised cash on hand of US$365 million and US$662 million
from the committed unutilised revolving credit facilities (RCF) in South Africa and Europe.
POST BALANCE SHEET EVENTS
On 15 July 2024 Sappi announced that it has concluded a sale agreement for the Lanaken
Mill with UTB Waalwijk B.V. a privately owned Dutch company specialising in industrial
property conversions. In terms of the agreement UTB will acquire all the shares in Sappi
Lanaken N.V. including all its assets for a value of €50 million, of which €40 million will be paid
in cash. The transaction is unconditional and expected to close during October 2024.
OUTLOOK
Global macroeconomic conditions and consumer sentiment are slowly improving but a high
level of uncertainty still exists, exacerbated by ongoing logistical challenges. Sappi remains
well positioned with our competitive dissolving pulp business and strategic focus on growing
the packaging and speciality papers segment to benefit from a global economic rebound.
Dissolving pulp market conditions remain robust as low downstream viscose staple fibre
inventories and a constrained DP supply landscape continue to offer support for DP prices.
Both VSF and DP prices have risen in recent weeks driven by an earlier than usual upsurge
in seasonal activity in the textile value chain and concerns around logistical challenges. Cotton
pricing has dropped in recent weeks from relatively high levels and is generally more volatile
than VSF and polyester pricing. The VSF discount to cotton nevertheless remains healthy
which should support continued demand for VSF.
Graphic papers markets remain suppressed, particularly in Europe. The fourth quarter is
seasonally stronger and we anticipate some recovery in demand for graphic papers through
the quarter. Market conditions for packaging and speciality papers in North America and South
Africa are steadily improving, but recovery in Europe continues to lag. Margin management
remains our primary focus for the paper businesses to mitigate the impact of rising costs.
Logistical challenges are driving up global shipping costs, which is expected to negatively
impact delivery expenses. Additionally, variable costs, particularly chemical costs, are
anticipated to increase as suppliers seek to pass on the higher logistics costs. Paper pulp
prices appear to have peaked and are expected to begin reducing in coming months.
However, there is typically a lag in European and North American pulp markets and therefore
the benefit of purchased pulp savings are only likely to be realised in the new financial year.
Capital expenditure for FY2024 is expected to be slightly below previous guidance due to
phasing projects and will likely be in the region of US$480 million. This includes approximately
US$154 million for the Somerset PM2 conversion and expansion project.
Market prices for hardwood timber have reduced in recent weeks and we anticipate that the
plantation fair value price adjustment for the fourth quarter will offset the majority of the gain
from prior quarters. Notwithstanding the slow recovery in global macroeconomic conditions,
and taking into consideration the impact of rising costs, we anticipate that EBITDA(2)(excluding
the plantation fair value price adjustment) for the fourth quarter of FY2024 will be above that
of the equivalent quarter in the prior year.
On behalf of the Board
S R Binnie
Director
G T Pearce
Director
08 August 2024
This results announcement is the responsibility of the directors. It is only a summary of the
information in the full announcement and does not contain full or complete details. Any
investment decision should be based on the full announcement accessible from 08 August
2024 via the JSE link and also available on the home page of the Sappi website at
www.sappi.com.
The JSE link is as follows:
https://senspdf.jse.co.za/documents/2024/JSE/ISSE/SAVVI/SAPQ324.pdf
JSE Sponsor: RAND MERCHANT BANK (A division of FirstRand Bank Limited)
1 "year-on-year" or "prior/previous year" is a comparison between Q3 FY2024 versus Q3 FY2023;
"Quarter-on-quarter" or "prior/previous quarter" is a comparison between Q3 FY2024 and Q2 FY2024
2 EBITDA in this report excludes special items
3 High yield pulp = bleached chemi-thermomechanical pulp (BCTMP)
Date: 08-08-2024 08:00:00
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