Commenting on the group’s results, Sappi Chief Executive Officer Steve Binnie said: “Despite continued challenging global macroeconomic conditions and weak paper markets I am pleased that the group delivered Adjusted EBITDA of US$203 million, which was ahead of expectations and substantially above last year.”
Year-on-year profitability improved across all segments, supported by cost savings, operational efficiency gains, higher dissolving pulp (DP) selling prices and sales volumes combined with improved packaging and speciality papers sales volumes.
Against the backdrop of global macroeconomic headwinds, weak consumer spending and overcapacity in paper markets, our Thrive strategy – in particular our strategic capacity rationalisation and cost-saving initiatives – continued to deliver positive outcomes.
The pulp segment delivered another strong performance with profitability significantly above that of last year. Demand for DP continued to be robust despite the Chinese viscose staple fibre (VSF) market entering the seasonally slow period ahead of the Chinese Lunar New Year. VSF industry operating rates remained high and inventories in the value chain continued to trend below historical levels.
Profitability of the packaging and speciality papers segment improved compared to the prior year, albeit off a low base. Sales volumes increased by 14% due to a significant recovery in North American paperboard sales volumes. Recovery in Europe continued to lag, driven by weak consumer sentiment and overcapacity. In South Africa, underlying demand was satisfactory within the context of the typical low seasonal activity in fruit export markets in the first quarter.
Profitability of the graphic papers segment improved year-on-year driven primarily by cost savings related to operational efficiency improvements. Sales volumes declined by 3% compared to the prior year as market demand resumed its historical decline following the volatility observed over the last two years. Selling prices were resilient despite significant supply overcapacity and low industry operating rates, which supported healthy EBITDA margins for the segment.
Looking forward, Binnie stated: “Notwithstanding relatively stable underlying market conditions and after taking into account the US$44 million negative impact of the annual maintenance shuts at Ngodwana and Saiccor Mills in South Africa, along with a 70-day shut to complete the Somerset Mill PM2 project, we anticipate that Adjusted EBITDA for the second quarter of FY2025 will be below that of the first quarter of FY2025.”
Financial summary for the quarter
- Adjusted EBITDA US$203 million (Q1 FY24 US$130 million)
- Profit for the period US$70 million (Q1 FY24 loss of US$126 million)
- Net debt US$1,406 million (Q1 FY24 US$1,216 million)
- Adjusted EPS 14 US cents (Q1 FY24 5 US cents)
The performance of the European region improved relative to last year benefiting from savings related to the strategic rationalisation of the graphic paper assets and higher selling prices. For graphic papers the reduced sales volumes were offset by higher selling prices and improved capacity utilisation. In packaging papers underlying demand remained muted due to weak consumer sentiment and overcapacity, however for speciality papers, particularly label grades, sales volumes and selling prices were up compared to the prior year. Overall fixed costs were down 12% due to personnel savings associated with the closure and restructuring actions within the region.
The North American region delivered another good performance for the quarter with Adjusted EBITDA substantially above last year. Success was largely driven by improved sales volumes compared to last year (up 12% for graphic paper and up 38% for packaging and speciality paper), which boosted operational efficiencies, and the absence of the scheduled maintenance shut at the Cloquet Mill that occurred during the comparative period.
Improved year-on-year profitability in the South African region was primarily driven by reduced costs and higher DP sales prices and volumes. The sales volumes and cost savings were due to improved operational efficiencies and the absence of maintenance shuts at Saiccor and Ngodwana Mills in the current period compared to the previous year. Containerboard sales volumes were in line with last year and underlying containerboard demand in local markets remained steady. Demand for office paper improved relative to last year driven by good back-to-school seasonal demand. Other paper categories struggled in a weak domestic economy.
Adjusted earnings per share for the quarter was 14 US cents, which was substantially above the 5 US cents in the prior year and reflective of the improved operating performance. Special items reduced earnings by US$11 million and were mainly related to the final write offs for the mill closures of last year and fire damaged timber. The forestry fair value price adjustment for the quarter was a loss of US$1 million.
Outlook
Underlying demand for dissolving pulp remains strong, supported by high operating rates in the VSF industry. However, we expect the seasonal slowdown in China's textile industry during the Lunar New Year celebrations to apply short-term pressure to DP pricing in the second quarter.
Packaging and speciality papers markets in North America and South Africa are expected to remain stable with good demand from our customers. European markets remain weak, and recovery is taking longer.
Graphic papers markets have normalised following a prolonged destocking cycle, and demand across all regions has resumed its historical decline. Overcapacity remains a significant headwind for the industry, particularly in Europe. Our strategic focus for this segment is to maximise our market share and proactively manage our capacity utilisation as we transfer graphic papers sales from our Somerset Mill PM2 to alternate assets.
Challenging global macroeconomic conditions, persistent geopolitical tensions, and uncertainties surrounding US trade tariffs pose both risks and potential opportunities to our business, which we continuously assess. In this environment, our strategic focus remains firmly on cost savings to safeguard our competitive advantage.
The Somerset Mill PM2 will be shut for a period of approximately 70 days in the second quarter as we complete the conversion and expansion to paperboard. The machine is expected to start commissioning in April 2025. The paperboard product mix will shift with the commercial ramp-up of the machine, initially increasing the proportion of sales to the lower-margin food service market. The project will adversely impact the second quarter earnings by approximately US$21 million.
Global paper pulp markets continue to be oversupplied and downstream paper demand recovery is slow. Prices have stabilised in recent weeks and market analysts are forecasting that we are approaching the trough in the cycle. We anticipate that our paper business will continue to benefit from the lower pulp input costs in the second quarter. Annual maintenance shuts are scheduled for the Ngodwana and Saiccor Mills in the second quarter (these occurred in the first quarter of last year), which will have a negative impact on earnings of approximately US$45 million. We anticipate that the forestry fair value price adjustment will be negative in the second quarter due to rising fuel costs.
Our capital expenditure forecast for FY2025 has risen from US$500 million to approximately US$525 million as we have made additional contingency provisions to account for increased labour costs associated with the Somerset Mill PM2 conversion and expansion project.
ENDS
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.
Issued by Brunswick
on behalf of Sappi Limited
Tel + 27 (0)11 502 7300
For further information
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
