Wrap Text
Results for the quarter ended March 2020
Sappi Limited
Registration number: 1936/008963/06
JSE code: SAP
ISIN code: ZAE000006284
Issuer code: SAVVI
Results for the quarter ended March 2020
Short- form SENS announcement
Quarter ended
Mar 2020 Mar 2019 Dec 2019
US$ million
Sales 1,308 1,503 1,302
Operating profit excluding special items 52 117 62
Special items – loss (gain) 29 – 7
EBITDA excluding special items 131 187 139
Profit for the period 2 72 24
Basic earnings per share (US cents) – 13 4
EPS excluding special items
(US cents) 4 13 6
Net debt 1,879 1,680 1,916
Sappi is a global diversified woodfibre company focused on providing dissolving pulp,
packaging and speciality papers, graphic papers as well as biomaterials and
biochemicals to our direct and indirect customer base across more than 150
countries.
Our dissolving pulp products are used worldwide mainly by converters to create
viscose fibre for fashionable clothing and textiles, as well as other consumer
products; quality packaging and speciality papers are used in the manufacture of
such products as soup sachets, luxury carry bags, cosmetic and confectionery
packaging, boxes for agricultural products for export, tissue wadding for household
tissue products and casting release papers used by suppliers to the fashion, textiles,
automobile and household industries; our market-leading range of graphic papers
are used by printers in the production of books, brochures, magazines, catalogues,
direct mail and many other print applications; biomaterials include nanocellulose,
fibre composites and lignosulphonate; biochemicals include second generation
sugars.
The wood and pulp needed for our products are either produced within Sappi or
bought from accredited suppliers. Sappi sells almost as much as it buys.
Commentary on the quarter
A strong packaging and specialities performance along with solid results in the
graphics paper segment, could not offset the significant impact of the historic low
dissolving pulp (DP) prices, and reduced DP sales volumes. Consequently, the
group generated EBITDA excluding special items of US$131 million compared to the
US$187 million in the equivalent quarter last year. Profit for the period declined to
US$2 million from US$72 million primarily as a result of the lower EBITDA as well as
restructuring provisions and asset impairments related to the proposed closure of
Stockstadt PM2 that was announced during the quarter.
Covid-19 had a relatively small impact on profitability during the quarter. However, an
anticipated improvement in DP prices did not materialise, principally as a result of the
outbreak of Covid-19 in China. The subsequent actions taken by various
governments only directly impacted our operations during the last few weeks of the
quarter, and there was minimal disruption to production, although the Condino mill in
Italy was temporarily shut. Towards the end of the quarter we began to receive
significant cancellations of DP and graphic paper orders scheduled to be delivered in
the third quarter, and new orders for both product categories slowed considerably.
Our strategy to diversify the product portfolio into higher margin segments and
position the company for future growth reaped rewards as the packaging and
specialities segment continued to grow profitability despite slow containerboard
demand in South Africa. Improved product mix and machine efficiencies combined
with lower input costs and increased sales volumes in Europe and North America
contributed positively. The ramp up of Somerset PM1 and Maastricht on paperboard
grades further assisted us to significantly reduce commercial downtime compared to
the prior year.
Strong customer relationships and service levels, along with a focus on efficiencies
and costs enabled us to make significant market share gains in our graphics paper
business, and as a result helped maintain profitability in this segment, despite weak
market conditions.
DP market prices fell by US$233/ton in the last twelve months as the combined
impact of soft global textile markets, US duties on textiles from China, excess
viscose staple fibre (VSF) capacity and a weaker US$/Renminbi exchange rate
drove the DP price downwards. On the supply side, low paper pulp prices provided
limited relief for swing producers, however some Chinese producers swung
production to various grades of paper pulp. This decline in DP market prices
significantly impacted both the segment and group profitability levels. The
incorporation of the high yield pulp sales from the Matane Mill acquisition in the
segment boosted year-on-year volume sales, but lowered the average realised
selling prices. Selling prices for this high yield pulp did not decline as much as kraft
pulp in the past year but remain at depressed levels.
Earnings per share excluding special items was 4 US cents, a decrease from the 13
US cents generated in the equivalent quarter last year. Special items reduced
earnings by US$29 million, related mainly to restructuring provisions and asset
impairment charges.
Cash flow and debt
Net cash generated for the quarter was breakeven, compared to US$148 million
utilised in the equivalent quarter last year. The improvement in net cash generation
was primarily a result of the suspension of dividend payments and lower working
capital outflows, cash taxes, capex, and finance costs, partially offset by lower cash
generated from operations.
Net debt of US$1,879 million increased by US$199 million relative to the equivalent
quarter last year as a result of cash utilised in the prior twelve months, the acquisition
of the Matane mill and the US$97 million net non-cash impact resulting from the
recognition of operating leases on the balance sheet following the implementation of
IFRS16.
Liquidity comprised cash on hand of US$268 million and US$642 million available
from the undrawn committed revolving credit facilities in South Africa and Europe.
On behalf of the board
S R Binnie
Director
G T Pearce
Director
07 May 2020
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 7 May 2020 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/2020/jse/isse/SAVVI/sappiQ220.pdf
JSE Sponsor: UBS South Africa (Pty) Ltd
Date: 07-05-2020 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 
