Sappi delivers excellent performance for first financial quarter 2022

The recovery has taken place within the context of the Covid-19 pandemic. Throughout this unprecedented time, the health and safety of our employees remained paramount. A comprehensive Covid-19 action plan enabled us to operate in a safe and uninterrupted manner across all our regions.”

Looking forward, Binnie stated: “Given the favourable demand outlook for all of our product segments we anticipate a further improvement in EBITDA for the second quarter of FY2022 from the excellent results achieved in the first quarter.”

Financial summary for the quarter
- EBITDA excluding special items US$240 million (Q1 FY21 US$98 million)
- Net debt US$1,917 million (Q1 FY21 US$2,056 million)
- Profit for the period US$123 million (Q1 FY21 loss of US$17 million)
- EPS excluding special items 20 US cents (Q1 FY21 loss of 1 US cent)

Global logistical challenges continued unabated and posed headwinds for our export sales and raw material procurement in all regions. Substantial energy, raw material and delivery cost inflation in the quarter was offset by selling price increases in the paper business.

Pulp sales volumes increased by 48% compared to the prior quarter as we secured more shipping capacity, albeit at higher cost, for our South African exports. The hardwood dissolving pulp (DP) market price decreased to US$905 per ton on the back of weakening viscose staple fibre (VSF) demand and pricing in China. VSF prices rebounded towards the end of the quarter which stabilised DP pricing. Sappi’s three dissolving pulp mills were fully sold throughout the quarter.

Markets for packaging and speciality papers continued to be robust across all regions with our sales volumes up 26% on a year ago. The successful implementation of price increases combined with product mix optimisation led to further progress in profitability for the segment.

Buoyant demand for graphic papers boosted sales volumes by 20% compared to last year and provided support for price increases, which were necessary to offset significant cost inflation and restore EBITDA margins for the segment. Notably, all assets ran at full operating capacity during the quarter.

Renewed strong demand in domestic and export markets supported price increases across all paper grades and facilitated the return of the European business to profitability. An unprecedented surge in energy prices for gas, power and coal compelled the implementation of an energy surcharge on all European products. This extraordinary measure was a key component of our strategy to offset the escalating energy costs and restore margins in the European business.

The North American region delivered a record first quarter EBITDA of US$89 million, which was more than triple the prior year. This achievement was despite significantly higher costs.

Year-on-year profitability of the South African business was positively impacted by improved sales volumes and pricing in all segments. EBITDA was 46% higher than the prior quarter despite significant cost increases and logistical challenges.

Outlook
The demand for DP continues to be strong. VSF pricing and operating rates improved in January which stabilised DP market prices at US$905 per ton ahead of the Chinese New Year. An extremely high differential between cotton and VSF prices should support fibre substitution in future quarters which would be positive for DP demand and pricing. Furthermore, the addition of breakbulk shipping is expected to aid in the reduction of the DP sales backlog.

The recovery of sales for graphic papers across all regions combined with industry capacity closures has tightened the market balance. Additionally, the underlying demand in the packaging and speciality papers segment remains robust. The stronger markets for all our paper products should support announced price increase realisation which is necessary to offset extraordinarily high input costs.

Global logistical challenges and vessel shortages are likely to continue through FY2022, and our objective is to secure sufficient transport capacity to support the strong demand for our products and optimise delivery costs.

Timber, pulp, chemicals, energy and delivery costs are expected to remain at elevated levels through the current financial year. Specifically, in South Africa the higher delivery, timber and chemical prices will impact the margins for the pulp business.

As previously disclosed, capital expenditure is estimated to be US$395 million for FY2022.