19 November, 2021
Sappi announces strong recovery after Covid-19 impact; releases financial results for fourth quarter and full year
Commenting on the group's results, Sappi
Chief Executive Officer Steve Binnie said: "I am very pleased
with Sappi's strong recovery and our return to profitability
for the year. I wish to recognise the dedication and
resilience of the Sappi team in turning a loss of US$135
million in 2020 into a profit of US$13 million for 2021, with
EBITDA increasing by 40% over the prior year. The team
overcame significant challenges posed by Covid-19. The
cooperation, cross-regional support and continued focus on our
Thrive25 strategy was exemplary.
Highlights for the year included the
recovery in the profitability of the dissolving pulp (DP)
segment driven by buoyant demand and significantly better
market prices as well as the North American region delivering
its highest financial year EBITDA in over a decade. Our
strategy of making investments in
packaging and speciality papers reaped rewards as the
segment achieved record profitability and sales volumes
increased by 21%."
Throughout this unprecedented time the
health and safety of our employees remained paramount. A
comprehensive Covid-19 action plan enabled us to operate in a
safe and uninterrupted manner where demand permitted. Working
closely with our customers and suppliers we systematically
increased activity and output in response to improved market
demand and our support for local communities helped mitigate
the impact of the pandemic and the ensuing socio-economic
consequences on them.
As Covid-19 lockdowns
eased and economic activity resumed, global trade rebounded
much faster than initially anticipated. The requirement for
shipping surged which triggered vessel and container
shortages, severe port congestion and significant freight
rate increases. The logistical disruptions described above
severely constrained our export sales in all regions. By
year-end, this resulted in a backlog of deliveries of
100,000 tons of DP. The impact on earnings from this backlog
amounted to approximately US$30 million. Furthermore, high
demand for raw materials and commodities, coupled with long
lead times and an inability to restock inventories, fuelled
worldwide inflationary pressures. Consequently, escalating
delivery and raw material costs, particularly purchased
pulp, chemicals and energy, negatively impacted margins in
all product segments. To mitigate the impact of these
rising costs we implemented a series of price increases in
our paper businesses.
While market conditions improved, the focus
was maintained on the preservation of liquidity and prudent
cash management. Strategic actions were re-prioritised while
variable and fixed costs continue to be reviewed.
The project to expand the Saiccor Mill
capacity was impacted negatively by Covid-19 lockdowns and
associated travel restrictions, which delayed the project
schedule. Commissioning of the plant began during the
fourth quarter and will be completed in the first quarter of
the 2022 financial year.
Turning to the financial results for the
quarter, Binnie said: "The ongoing recovery
from Covid-19 continued in the fourth quarter. High DP
prices and an excellent performance by the North American
business more than offset escalating raw material costs and
ongoing supply chain challenges, which constrained shipments
and negatively impacted delivery costs.
The South African civil unrest, coupled with supply
chain challenges, including a cyber-attack and equipment
failure at the Durban port, along with adverse weather events,
had a negative impact on fourth quarter EBITDA.
Notwithstanding this, group EBITDA
increased by 22% to US$177 million from the US$145 million
achieved in the third quarter."
Looking forward, Binnie stated: "We remain encouraged by the growing resilience
of global economies as the Covid-19 pandemic evolves and the
corresponding recovery in underlying demand in all of our
product segments. However, the supply chain challenges, and
the extraordinary energy cost inflation may affect
profitability. In addition, the maintenance shut at
Somerset Mill is scheduled for the first quarter and will
impact EBTDA. As a result, we anticipate an improvement in
EBITDA in the first quarter of FY2022 relative to the fourth
quarter of FY2021."
Financial summary for the quarter
and full year
EBITDA excluding special items
For the quarter US$177 million (Q4 FY20 US$82 million)
For the year US$532 million (FY20 US$378 million)
Profit for the period
For the quarter US$35 million (Q4 FY20 loss of US$88
For the year US$13 million (FY20 loss of US$135 million)
EPS excluding special items
For the quarter 11 US cents (Q4 FY20 loss of 4 US cents)
For the year 15 US cents (FY20 loss of 5 US cents)
Net debt US$1,946 million (FY20 US$1,957 million)
Viscose staple fibre
(VSF) prices dropped during the quarter due to higher
inventory levels and a delay in the seasonal upswing in
demand ahead of the Chinese National Holidays in September.
Despite the lower sales volumes compared to the prior
quarter, the EBITDA for the segment increased by 38% due to
beneficial pricing which peaked in the third quarter and
formed the basis of fourth quarter contract prices.
Sales volumes in the
packaging and speciality papers segment increased 10%
compared to the equivalent quarter in the prior year as the
North America business experienced encouraging sales growth
and margin improvement across all of the major product
categories. Growth in European packaging and specialities
sales volumes was hampered by weaker demand for certain
non-essential luxury product categories and prolonged
speciality paper qualifications. Containerboard demand in
South Africa was robust on the back of strong fruit exports.
EBITDA for the segment improved 21% compared to last year.
Graphic paper demand
continued to recover and, combined with industry capacity
closures, ensured the market balance in Europe and North
America was restored to healthy levels. However,
profitability in Europe remained a challenge due to
inflationary cost pressures. Low industry inventory levels
and longer delivery lead times linked to the global supply
chain challenges provided support for price increases during
Earnings per share
excluding special items for the quarter was 11 US cents,
which was a substantial improvement on the 5 US cents in the
prior quarter and indicative of the recovery of
profitability for the group.
Net cash generated for the quarter was
US$33 million, compared to US$88 million in the equivalent
quarter last year. The decrease was primarily as a result of
increased capital expenditure of US$143 million related mainly
to the expansion of DP capacity at Saiccor Mill.
conditions for DP continue to be strong. However,
short-term demand in China is impacted by the recent
implementation of energy savings regulations which impose
curtailments for energy intensive manufacturing operations
across the country. The textile value chain has been
negatively impacted thereby reducing VSF production and DP
demand. Consequently, DP market prices dropped to US$940
per ton in October. However, lower VSF supply and a
widening price differential to cotton fuelled a significant
rise in VSF pricing, which should be positive for DP
pricing. Sappi's sales volumes are not expected to be
impacted by the weaker Chinese DP demand.
The recovery of demand
for graphic paper combined with industry capacity closures
has tightened the market balance. In North America,
restrictions on imports due to global supply chain
disruptions have further contributed to a positive
environment in this region. The underlying demand in the
packaging and speciality papers segment remains robust in
both the North American and South African regions and
opportunities for further growth in sales volumes exist in
Europe. The scheduled Somerset Mill annual maintenance
shut, which includes a 7-year cold outage, will have an
estimated US$22 million impact on profitability in the first
Recent spikes in global
energy prices for gas, power and coal are anticipated to
have an adverse impact on our first quarter results,
principally in Europe. To offset rising costs, we have
announced selling price increases across all paper grades.
In addition, energy specific surcharges have been
implemented for all European shipments from 25 October 2021.
challenges and vessel shortages are expected to continue
through FY2022, which may have an ongoing negative impact on
our export sales. It is unlikely that any improvement in
supply chain reliability will be realised in the first
quarter and hence the backlog of 100,000 tons of DP sales
volumes will take time to resolve.
The first quarter of
FY2022 will comprise 14 weeks instead of the typical 13-week
quarter. This is in order to adjust out reporting periods
closer to the calendar periods. This will result in
increased sales compared to comparative quarters.
Capital expenditure in
FY2022 is estimated to be US$395 million and includes
approximately US$30 million of Saiccor Mill expansion capex,
US$80 million for cost optimisation and quality improvement
projects and US$75 million for sustainability projects.