Sappi posts Q1 profit of $18 mln

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Earnings per share for the quarter were 3 US cents compared to 2 US cents in the equivalent quarter last year.

The group returned to positive earnings in the quarter with an EBITDA excluding special items of US$147 million, and an operating profit excluding special items of US$60 million.

“Conditions are generally difficult in the global graphic paper markets, in line with our expectations in Europe and more challenging than anticipated in North America,” Sappi said in a statement. 

The South African business had another good quarter, benefiting from additional sales volumes in the Specialised Cellulose business from the Ngodwana Mill, the weaker Rand/Dollar exchange rate, and a gradual improvement in the paper business.

The European business returned to a small operating profit after three quarters of losses, with a reduction in fixed cost offsetting lower selling prices.

The North American business experienced a difficult quarter, with volume and price declines in the paper segment as well as increased variable costs leading to a small operating loss.

Sappi said that the group had benefited from the strategic decision to invest in and grow the Specialised Cellulose business, with 286kt of dissolving wood pulp sold during the quarter – an increase of 63 per cent over the equivalent quarter last year – generating US$74 million in EBITDA, excluding special items at an EBITDA margin of 30 per cent.

“We continue to benefit from our low cost position at each of our dissolving wood pulp mills and the weaker Rand/Dollar exchange rate during the quarter,” the statement said.

Sappi said that there were no major special items for the quarter. The gain of US$10 million included a positive plantation fair value price adjustment of US$8 million and an asset impairment reversal of US$2 million.

Net cash utilised for the quarter was US$133 million, an increase compared to the net cash utilised of US$102 million in the equivalent quarter last year which included the proceeds from the disposal of assets.

This cash outflow for the quarter was mainly a result of a seasonal increase in working capital. Capital expenditure in the quarter declined to US$71 million compared to US$96 million a year ago, reflecting the completion of the expenditure on the dissolving wood pulp projects.

Net debt of US$2,348 million is up, compared to both the prior quarter, US$2,214 million, and the equivalent quarter last year, US$2,095 million, as a result of the seasonal increase in cash utilisation and the past year’s capital expenditure respectively.

Liquidity comprises cash on hand of US$210 million and US$581 million available from the undrawn committed revolving credit facilities in South Africa and Europe.

Sappi said the past year had reinforced the importance of the company’s strategy to reposition Sappi for growth, higher margins, improved profitability, and with less reliance on graphic paper.

It said the two major dissolving wood pulp conversion projects were now both contributing to earnings and profitability, whilst the paper businesses, although dealing with difficult market conditions, continue to generate cash that will enable the company reduce debt.

“Both the European and South African paper businesses returned to profitability during the quarter, and we expect to see further improvement in the performance of these paper businesses. Plans are in place to return the North American paper business to previous profitability levels,” Sappi said.

Capital expenditure for the full year is expected to be less than US$300 million and, along with the expected improvement in profitability when compared to the prior year, should allow the group to reduce debt levels to approximately US$2 billion by the end of the fiscal year.