Wrap Text
Second quarter results for the period ended March 2021
Sappi Limited
Registration number: 1936/008963/06
JSE code: SAP
ISIN code: ZAE000006284
Issuer code: SAVVI
Second quarter results for the period ended March 2021
Short-form SENS announcement
Quarter ended Half-year ended
US$ million Mar 2021 Mar 2020 % Mar 2021 Mar 2020 %
Sales 1 284 1 308 -2% 2 447 2 610 -6%
EBITDA excluding special items 112 131 -15% 210 270 -22%
Profit for the period (23) 2 -1250% (40) 26 -254%
Net debt 2 070 1 879 10% 2 070 1 879 10%
Headline EPS (US Cents) (3) 2 -250% (7) 6 -217%
Basic EPS (US Cents) (4) - - (7) 5 -240%
EPS excluding special items (US Cents) (1) 4 -125% (2) 10 -120%
Net asset value (US Cents) 345 329 5% 345 329 5%
Sappi is a leading global provider of powerful everyday materials made from woodfibre-
based renewable resources. Together with our partners, we are quickly moving toward a
more circular economy.
Our raw material offerings (such as dissolving pulp, wood pulp and biomaterials) and end-
use products (packaging and specialities 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. Many of our operations are energy self-
sufficient.
Sappi works to build a thriving world by acting boldly to support the planet, people and
prosperity.
Commentary on the quarter
The steady recovery from the ongoing challenges of the Covid-19 pandemic continued
during the second quarter. A strong packaging and specialities performance combined with
solid results from dissolving pulp (DP) offset the weak demand and margin squeeze in
graphic paper. Consequently, group EBITDA excluding special items of US$112 million was
a further increase on the US$98 million achieved in the first quarter. The North American
and South African regions recorded improvements in profitability. This was in contrast to
Europe where extended lockdowns and restrictions on economic activity hindered the
performance. Logistics issues across all regions, including congested networks, shipping
line schedule disruptions, lack of containers and vessel space constraints negatively
impacted sales volumes and delivery costs in a number of product categories.
Our comprehensive Covid-19 action plan is fully entrenched in all of our operations and
employee safety remains a top priority. The rate of employee and contractor infections
reduced significantly during the quarter across all regions and as a consequence there was
minimal impact on mill operations.
A positive highlight for the quarter was the continued rapid recovery of DP markets. The
Chinese market price surged by US$340 per ton during the quarter to US$1,066 per ton and
peaked in April to the highest level since May 2012. The key factors supporting the positive
sentiment in the sector include continued tight DP supply, low VSF inventory levels
throughout the textile value chain, improved apparel retail demand in the US and Asia which
favourably impacted all textile fibre prices, higher paper pulp prices and a continued weaker
US$/Renminbi exchange rate. Due to the lag impact of selling prices incorporated into our
major contracts, these higher DP prices will only be realised in future quarters. A relative
increase in costs related to the stronger ZAR/US$ exchange rate partially offset the US
Dollar selling price gains during the quarter. Included in the DP segment were 57,000 tons of
bleached chemi-thermo mechanical pulp (BCTMP) and paper pulp sales volumes.
Sales volumes in the packaging and specialities segment increased by 25% compared to
last year due to a further ramp-up of board products in North America and strong
containerboard demand in South Africa. While demand for most categories in Europe was
positive, some non-essential products were affected by Covid-19-related lockdowns.
Profitability in Europe was partially reduced by lower selling prices.
The steady rate of recovery in graphic paper demand over the last two quarters slowed and
sales volumes in the segment were 17% lower than the same quarter last year. Market
capacity closures enabled Sappi to gain market share but the pressure on input costs,
particularly pulp, and rising delivery charges impacted profitability negatively.
Earnings per share excluding special items for the quarter was a loss of 1 US cent, a
decrease from the 4 US cents generated in the equivalent quarter last year.
Cash flow and debt
Capital expenditure of US$70 million was comparable to the equivalent quarter of last year.
Net cash utilised for the quarter was US$53 million compared to a breakeven in the
equivalent quarter last year and was primarily due to an increase in working capital from
improving operations. Net debt increased by only US$14 million from December 2020 to
US$2,070?million, benefiting from a stronger US Dollar which reduced the Euro denominated
debt converted at a lower rate. Liquidity comprised cash on hand of US$350?million and
US$660 million available from the undrawn committed revolving credit facilities (RCF) in
South Africa and Europe.
Favourable market conditions provided the group with the opportunity to refinance the
€350 million 2023 bonds during the quarter at par. Strong investor demand provided the
opportunity to upsize the replacement 2028 bond to €400 million at a coupon 3.625%, with
the additional proceeds used to repay the partly drawn RCF in Europe.
The net finance costs of US$46 million included a further non-cash fair value adjustment of
US$16 million arising from the revaluation of the conversion rights for the Sappi Southern
Africa R1.8 billion convertible bonds issued in the first quarter. The requirement for
revaluations is applicable to the period between the bond placement and shareholder
approval for the issue of new shares, which was obtained at the AGM in February, and
therefore no further revaluation adjustments will be required. Also included in the finance
costs was US$3 million relating to the refinancing of the 2023 bonds.
The covenant suspension period ends in September 2021 and financial covenants have to
be measured again from December 2021. The following leverage covenants (net
debt:EBITDA) have been agreed with our banking group as we exit the covenant suspension
period: December 2021: 5.50; March 2022: 5.25; June 2022: 4.75; September and
December 2022: 4.50 and March 2023: 4.25. The interest coverage covenant will be
reinstated at its previous level of 2.50 times.
Outlook
DP market indicators remain positive and demand from our customers currently exceeds our
capacity. As at 30 April 2021, the Chinese DP market price was US$1,100 per ton. However,
pricing for VSF and other textile fibres has reduced in recent weeks. Much of the benefit
from the material recovery of DP prices in the second quarter will be realised in subsequent
quarters due to the lag in contractual pricing. A prolonged stronger ZAR/US$ exchange rate
will temper some of the pricing benefits for the South African DP segment.
The underlying demand in the packaging and specialities segment in North America and
South Africa remains robust and our focus is shifting to improving margins through machine
efficiencies, mix optimisation and price realisation. However, as long as there is uncertainty
in Europe regarding the continuing lockdowns due to Covid-19, the sluggish economic
activity in this region is expected to impact demand for non-essential consumer products.
Graphic paper markets remain challenging and demand is still well below the long term pre-
Covid-19 trend levels. The persistent weak demand in Europe is likely to keep the market in
oversupply and diminish pricing power. The lag in sales price increase realisation in
combination with rising raw material and logistics costs could exacerbate the margin
squeeze even further in that region.
Ongoing worldwide logistical challenges of container shortages, port congestion and
availability of vessel capacity pose a risk to export volumes from all regions in the third
quarter.
Capital expenditure in FY2021 is estimated to be US$400 million and the Saiccor Mill
expansion project is expected to commence production in the fourth quarter. Liquidity
headroom within the group is good. The successful reinstatement of our leverage covenants
as described earlier provides a comfortable level of headroom when covenant measurement
commences again from December 2021.
Given the favourable market conditions for DP and packaging and specialities, offset
partially by the weak graphic paper demand and global logistical challenges, we expect the
third quarter EBITDA to improve relative to the second quarter. However, earnings in the
European business will be lower due to rising pulp costs.
On behalf of the board
S R Binnie
Director
G T Pearce
Director
6 May 2021
Short form announcement
This short-form 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 on 6 May 2021
via the JSE link and also available the sappi website at www.sappi.com.
Copies of the full announcement may be requested by contacting Jeanine Olivier on
telephone: +27 (0)11 407 8307, email: Jeanine.Olivier@sappi.com.
The JSE link is as follows:
https://senspdf.jse.co.za/documents/2021/jse/isse/SAVVI/sappiQ221.pdf
JSE Sponsor: UBS South Africa (Pty) Ltd
Date: 06-05-2021 09:00:00
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 
