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Sappi update on the impact of Covid-19 and debt covenant relief
Sappi Limited
(Incorporated in the Republic of South Africa)
Registration number: 1936/008963/06
JSE share code: SAP
ISIN code: ZAE000006284
("Sappi" or the "Company")
Sappi update on the impact of Covid-19 and debt covenant relief
Covid-19
Sappi’s approach to the outbreak of Covid-19 is guided by our values and purpose. Our
priority remains the safety of our people across all of the territories where they are present.
Those of our staff who can, follow local work-from-home arrangements. All international
travel has ceased, with only exceptional local travel allowed. Meetings occur remotely, and
our mills and other facilities apply stringent guidelines for social distancing and sanitising.
This ensures that our operations continue in a safe and uninterrupted manner. We remain in
close contact with our customers and suppliers as we try to minimise any negative impacts
within government constraints, helping local economies to mitigate the negative economic
consequences of the various measures imposed. We also assist with efforts to help mitigate
the impact of the virus on local communities.
As of 30 March 2020, all our production, warehousing and distribution facilities are fully
operational. The Condino mill, located in Italy, was temporarily shut for the week ending 27
March. As governments step up efforts to contain and control the spread of Covid-19 there
may be future interruptions, but encouragingly, there has been minimal disruption thus far. In
this regard many of our products are required by the sectors ensuring food security and
hygiene supplies.
Market update
The pandemic has to date not had a material impact on profitability. However, the actions
taken by governments across the world to reduce the spread of the virus have created
significant uncertainty in our markets. The closure of many clothing retailers across the world
will have a substantial impact on demand for textiles, and consequently dissolving pulp.
Order activity for graphic paper has slowed markedly. The packaging segment, with much of
our volumes sold into the food industry, should be more resilient during the crisis. Lower oil
prices will provide some input cost relief, while the weaker ZAR/USD exchange rate benefits
the South African business. We have not experienced any meaningful disruption to inbound
or outbound logistics, nor shortage of key raw materials. However, as shutdowns spread
across different countries and industries, supply of key raw materials may become affected.
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Balance sheet and liquidity
Current liquidity headroom in the group is strong, with cash deposits in excess of US$200
million and two undrawn revolving credit facilities of approximately US$640 million. In light of
the uncertainty regarding future trading conditions and the importance of ensuring we have
adequate liquidity for the duration of this period, we have been in negotiations with the
consortium of banks that provide Sappi’s European bank facilities that are subject to financial
covenants. We are pleased to report strong support from our banking group and that the
consortium has agreed to suspend covenant measurement in principle for four quarters from
June 2020 to March 2021, subject to completing the documentation in this regard. This
suspension is subject to normal conditions for this kind of assistance, which only apply during
the suspension period, and include no dividend payments, maximum capex spending limits,
a minimum liquidity requirement and no M&A activity without prior bank approval.
Mitigating Actions
With a primary focus on liquidity and cash flow, we have taken immediate action and
implemented various cost saving measures across our operations, curtailing where possible
all non-essential capital expenditure and applying measures to optimise working capital. The
declaration by Sappi of force majeure on the Saiccor Mill expansion and upgrade project will
delay capital expenditure, and any associated costs as a result of the declaration are not
expected to be material.
Dissolving Pulp
Sappi have received separate notifications of the intention to reduce dissolving pulp
purchase volumes from some major customers in relation to their contractual volume
commitments in the coming quarter. Dissolving pulp sales volumes are therefore currently
expected to reduce materially in the period April to June 2020. Sappi will update the market
as soon as it is in a position to quantify the near-term impact of this development, including
the mitigating steps taken.
Earnings forecast suspension
As a result of the global Covid-19 crisis, Sappi Ltd expects lower demand for some of its
products, particularly dissolving pulp and graphic paper. The potential impact cannot be
estimated reliably due to uncertainty regarding the duration and magnitude of the effects on
the global economy arising from Covid-19 and various governments’ response thereto.
Consequently, Sappi will not be able to provide profit forecasts in the near future.
The information in this announcement has not been reviewed and reported on by
Sappi’s external auditors.
Johannesburg
30 March 2020
Sponsor : UBS South Africa (Pty) Ltd
Date: 30-03-2020 02:35:00
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