Wrap Text
Results for the first quarter ended December 2023
Sappi Limited
Registration number: 1936/008963/06
JSE code: SAP
ISIN code: ZAE000006284
Issuer code: SAVVI
("Sappi" or "the Group")
Results for the first quarter ended December 2023
Quarter ended
US$ million Dec 2023 Dec 2022 % Change
Sales 1 272 1 660 -23%
EBITDA excluding special items 156 290 -46%
Profit for the period (126) 190 N/M
Net debt 1 216 1 241 -2%
Headline EPS (US Cents) (22) 34 N/M
Basic EPS (US Cents) (23) 34 N/M
EPS excluding special items (US Cents) 8 30 -73%
Net asset value (US Cents) 404 447 -10%
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)
Within the context of ongoing challenging global macroeconomic conditions and weak paper
markets, the group delivered EBITDA excluding special items (EBITDA) of US$156 million,
which was in line with guidance provided in the prior quarter. Profitability was negatively
impacted by approximately US$45 million due to the lower production volumes associated with
the planned maintenance shutdowns at the Saiccor, Ngodwana and Cloquet mills offset
somewhat by a US$26 million positive plantation fair value price adjustment(2). We recognise
that our forestry assets are an integral part of the South African business and we have
therefore taken the decision to include the forestry valuation in our EBITDA, thereby aligning
with many of our peers.
Paper markets remained unpredictable, and demand was still under pressure from low
consumer confidence, high interest rates and ongoing geopolitical instability. Group sales
volumes(3) were down 12% compared to the prior year and we continue to optimise production
rates to match sales. Despite the tough conditions, selling prices during the quarter were
reasonably stable for most products. Significant year-on-year cost savings across all regions
enabled the business to mitigate some of the impact of lower sales.
Demand for dissolving pulp (DP) was robust, buoyed by high downstream viscose staple fibre
(VSF) operating rates in China. Despite favourable demand and tight supply dynamics, the
hardwood DP market price(4) continued to be range bound by subdued VSF selling prices due
to sluggish textile and apparel markets, especially in Europe and China, influenced by low
consumer confidence. DP prices peaked at US$900 per ton but subsequently decreased to
US$880 per ton at quarter end. This reduction was attributed to lower VSF pricing as the
Chinese market entered the seasonally slow period ahead of the Chinese Lunar New Year.
The scheduled maintenance shutdowns during the quarter at all three DP mills impacted
profitability for the segment and reduced sales volumes to 6% below the prior year.
Graphic paper demand showed signs of a muted recovery from the lows of the third quarter of
FY2023 as downstream inventory levels normalised through the supply chain. Sales volumes
were 14% below the prior year but improved by 6% compared to the prior quarter. A key
element of Sappi's Thrive strategy is to reduce exposure to declining graphic paper markets
and to ensure higher capacity utilisation in our graphic assets. The rationalisation of our
European graphic paper capacity gained momentum during the quarter with the closure of the
Stockstadt Mill and subsequent carouselling of sales volumes to alternate assets. The
consultation process for the closure of the Lanaken Mill was also concluded late in the quarter.
Profitability of the packaging and speciality papers segment was impacted by lower South
African containerboard sales due to the planned maintenance shut at the Ngodwana Mill,
sluggish underlying European demand and residual destocking across a number of product
categories. On a positive note, demand for paperboard in North America showed signs of
recovery as customer inventories normalised. Sales volumes for the segment were 14% below
the prior year.
Earnings per share excluding special items for the quarter was 8 US cents, which was
substantially below the 30 US cents in the prior year and reflective of the more challenging
operating environment. Special items reduced earnings by US$179 million and were primarily
related to US$169 million in restructuring and closure costs associated with the closure of the
Lanaken Mill.
Cash flow and debt
Net cash utilised for the quarter was US$69 million compared to the US$23 million generated
in the prior year. The lower cash generation was primarily due to reduced profitability. Capital
expenditure of US$75 million was above last year due to the planned increased expenditure
related to the Somerset PM2 conversion and expansion project during the period.
Net debt of US$1,216 million was US$25 million below last year but higher relative to the
record lows of the prior quarter. This was due to the net cash utilised and a negative currency
translation effect of US$56 million due to a weaker US Dollar on our Euro-denominated debt.
Liquidity comprised cash on hand of US$533 million and US$678 million from the committed
unutilised revolving credit facilities (RCF) in South Africa and Europe. Sappi's progress in
significantly reducing net debt levels over the past two years has positioned the business and
the balance sheet well to navigate the tougher economic climate and cyclical downturns.
Post Balance Sheet Events
On 18 January 2024, Sappi issued a notice of early redemption of the remaining ZAR1.165
billion (US$63.7 million) Sappi Southern Africa's 5.25% senior unsecured convertible
registered bonds due 26 November 2025. Bondholders who do not want their Bonds to be
redeemed for cash may exercise their conversion rights at any time up to close of business on
Tuesday, 5 March 2024.
Outlook
The global economy has yet to show signs of significant improvement and we anticipate
demand for many of our products will continue to be impacted by weak consumer sentiment
and low economic growth. Order activity for paper products is slowly improving and it appears
the extended destocking cycle has concluded across the majority of our key product
categories.
Dissolving pulp demand remains robust supported by high VSF operating rates and a positive
differential between VSF and cotton pricing. The seasonal slowdown of the textile industry in
China associated with the Lunar New Year celebrations has historically exerted short-term
pressure on DP pricing in the second quarter. However, we anticipate that underlying textile
demand will likely drive positive pricing momentum after the holiday period, further supported
by a tight DP supply landscape.
Packaging and speciality papers markets in North America and South Africa are steadily
improving. European markets remain weak, and recovery may take longer in this region.
Although we anticipate a further small rebound in graphic paper sales volumes through
FY2024 as value chain inventory levels normalise, we believe that the market remains in
oversupply. We will complete the restructuring and closure of the Lanaken Mill during the
second quarter and anticipate that reduced fixed costs and improved capacity utilisation in the
remaining European assets will yield significant cost savings through the second half of the
year.
Cost inflation remains a risk in the second quarter as paper pulp prices are rising. In addition,
the Middle East conflict is impacting shipping routes which will likely increase logistics costs
for the business.
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 anticipate a substantial cash outflow in the second quarter related to the closure of the two
European mills and the dividend payment. Sappi is well positioned with healthy cash reserves
and liquidity to fund this outflow.
Good progress is being made in our key strategic focus areas to reduce exposure to graphic
paper and grow our packaging business. The European restructuring programme and capital
investment in North America to increase our paperboard capacity will strengthen our long-term
competitive position and deliver sustained value for our stakeholders.
Taking into account the protracted macroeconomic uncertainty, we anticipate that EBITDA for
the second quarter of FY2024 will be similar to that of the first quarter.
On behalf of the Board
S R Binnie
Director
G T Pearce
Director
07 February 2024
(1) "year-on-year" or "prior/previous year" is a comparison between Q1 FY2024 versus Q1 FY2023;
"quarter-on-quarter" or "prior/previous quarter" is a comparison between Q1 FY2024 and Q4 FY2023
(2) From fiscal 2024, EBITDA excluding special items now includes the plantation fair value price
adjustment which was previously included as part of special items.
(3) Sales volumes excluding forestry.
(4) Market price for imported hardwood dissolving pulp into China issued daily by the CCF Group.
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 07 February
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/SAPQ1.pdf
JSE Sponsor: RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Date: 07-02-2024 08:00:00
Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
Sharenet Sites 
