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Sappi shares results for its third financial quarter of 2023

Sappi recently announced the results for its third financial quarter for 2023.

Highlights from the quarter include:

• EBITDA excluding special items US$106 million (Q3 FY22 US$371 million)
• Net debt of US$1,176 million (Q3 FY22 US$1,530 million)
• Profit for the period US$40 million (Q3 FY22 US$199 million)
• EPS excluding special items 5 US Cents (Q3 FY22 39 US Cents)

Commenting on the group’s results, Sappi CEO Steve Binnie said, “Following the record profitability achieved last year, the group faced persistent challenges in the global economy and encountered ongoing weakness in paper and pulp markets. Specifically, the paper businesses experienced a significant downstream destocking cycle. Customers reduced their inventories in anticipation of lower prices, thereby affecting demand. In response, we proactively curtailed excess production in Europe and North America, implemented various cost-saving initiatives across our operations, and applied measures to optimize working capital. The profitability of the South African business was more stable, bolstered by the dissolving pulp business.

Sappi delivered an EBITDA excluding special items of US$106 million against a backdrop of a challenging global economy and significantly weaker paper and pulp markets. Despite the difficult economic environment and the share buyback of US$22 million during the quarter, further progress was made towards our net debt target of US$1 billion. Net debt decreased by US$49 million from the prior quarter to US$1,176 million. A stronger Euro/US Dollar exchange rate resulted in Euro-denominated debt being converted at a higher rate and negatively impacted net debt by US$105 million for the year to date.”

Looking forward, Binnie stated, “Despite the challenging economic environment, we generated cash in the quarter and liquidity in the group remains strong. We are committed to our strategy to reduce exposure to graphic paper markets while investing for growth in renewable packaging, dissolving pulp and biomaterials. Despite the slow recovery of paper demand and notwithstanding continued margin pressure in all of our market segments, EBITDA in the fourth quarter is likely to be marginally above that of the third quarter.”

Demand for dissolving pulp (DP) remained positive supported by sustained high operating rates for viscose staple fibre (VSF) and a recovery in pricing for alternative textile fibres such as cotton. However, the hardwood DP market price declined from US$920/ton to US$870/ton during the quarter, driven primarily by the weak Chinese Renminbi exchange rate against the US Dollar, relatively low VSF pricing and the sluggish global economy. Sappi mills were fully sold supported by long term contracts. Enhanced plant stability at the Saiccor Mill and the absence of maintenance shuts at the Ngodwana and Cloquet Mills resulted in improved production volumes for the segment. The higher sales volumes offset the negative impact of lower selling prices and the segment maintained flat year-on-year EBITDA margins.

Continued weakness in graphic paper markets during the quarter was driven primarily by the destocking cycle and negative consumer sentiment. Selling prices remained resilient at five percent above last year’s levels, despite facing a 45 percent reduction in sales volumes compared to the prior year. Similarly, weak trading conditions and high inventory levels were observed in the packaging and specialty papers segment where sales volumes decreased by 26 percent compared to the prior year. The impact of the lower sales volumes resulted in reduced profitability in these segments.

In North America sales volumes of graphic paper reduced by 46 percent compared to the previous year and were 21 percent below the prior quarter. The contraction in sales volumes for packaging and specialty papers was comparatively less severe, with declines of 37 percent and nine percent from the prior year and previous quarter respectively. In the pulp segment, overall sales volumes were marginally better than last year as bleached hardwood kraft (BHK) market sales were able to offset lower volumes for bleached chemi-thermomechanical pulp (BCTMP) and somewhat lower volumes for Verve.