Sappi results for 2nd quarter and half-year ended March 2015 in line with expectations

Highlights for the quarter

  • Profit for the period US$56 million (Q2 2014 US$32 million)
  • EPS excluding special items 11 US cents (Q2 2014 5 US cents)
  • EBITDA excluding special items US$170 million (Q2 2014 US$171 million)
  • Net debt US$1,916 million (Q2 2014 US$2,248 million)
  • Successful refinancing of 2018 and 2019 bonds

Commenting on the result, Sappi Chief Executive Officer Steve Binnie said:

Operating performance in the quarter was in line with our expectations and the equivalent quarter last year. The group generated EBITDA, excluding special items, of US$170 million, operating profit excluding special items of US$104 million and profit for the period of US$56 million. Earnings per share for the quarter were 11 US cents, compared with 6 US cents (including a gain of 1 US cent in respect of special items) in the equivalent quarter last year.

During the quarter we repaid our 2018 and 2019 bonds through the issue of a new €450 million seven-year bond, with a coupon of 3.375%, and through a drawing from the European revolving credit facility. That facility was also renewed and increased to €465 million (previously €350 million).

Net debt of US$1,916 million declined by US$124 million from the prior quarter, as a result of the cash generated from operations, lower working capital and favourable exchange rates on the translation of our debt.

We expect operating performance for the year will be broadly similar to 2014 despite a number of significant once-off impacts from various capital projects. At current exchange rates, the translation of Euro and Rand results to Dollars may have an impact on group results. Nevertheless, earnings per share excluding special items are expected to be substantially better than that of the prior year.

Sappi Results

* Refer to the published results for details on special items, the definition of the terms and the reconciliation of EBITDA excluding special items to profit/loss for the period.
The table above has not been audited or reviewed.

The quarter under review

The Specialised Cellulose business continued to generate solid returns during the quarter, with EBITDA, excluding special items, of US$65 million. US Dollar prices for dissolving wood pulp declined compared to the prior quarter due to excess market supply as well as low prices and margins in the viscose staple fibre sector. However, the weaker Rand/Dollar exchange rate enabled the South African mills to maintain Rand pricing and margins.

The European business increased profitability but its performance was impacted adversely by higher costs of raw materials due to the weaker Euro/US Dollar exchange rate and particularly weak demand in January. Export paper prices benefited from the weaker Euro.

The North American business was boosted by higher coated paper prices and returned to an operating profit in the quarter. This improvement was achieved despite severe weather in the Northeast of the United States, which impacted both logistics and production at the Somerset Mill.

The paper business in South Africa improved operating performance further in this quarter, with increased sales volumes and prices offsetting increased variable costs.

Net cash generation for the quarter of US$82 million was lower than the net cash generated of US$132 million in the equivalent quarter last year as a result of lower working capital inflows due to inventory increases during the period. Capital expenditure in the quarter was US$46 million and mainly related to maintenance and efficiency projects.

Special items for the quarter included a gain of US$57 million resulting from the transfer of the Sappi Dutch pension fund to a general fund and a positive plantation fair value pricing adjustment of US$18 million for the South African plantations. These benefits were offset by once-off finance charges of US$63 million relating to the refinancing of the 2018 and 2019 bonds. The finance charges included breakage fees, accelerated amortisation of costs and unwinding of an interest rate swap. The cash impact of the refinancing was a negative US$53 million.


Graphic paper markets, particularly for coated mechanical, remain difficult and continued cost pressure from higher paper pulp and wood prices are placing margins under pressure. Lower oil and energy costs are providing some relief. Coated woodfree paper price increases in the US market have widened the gap with European pricing levels; however, no significant increase in imports into the US market has been experienced to date.

Textile prices, particularly for those of cotton and viscose, appear to have stabilised over the past few months, after a long period of decline. Dissolving pulp prices have followed a similar trend. We remain well positioned to meet the changing market needs. The weaker Rand/US Dollar exchange rate will support the profitability of this business.

Capital expenditure in 2015 is expected to be approximately US$280 million and is focussed largely on maintenance projects and efficiency improvement investments at our Kirkniemi and Gratkorn Mills.

We estimate that; post the refinancing of our 2018 and 2019 bonds, reduction in debt and movements in currencies, net finance costs will be approximately US$110 million per annum. At current exchange rates, we expect to reduce net debt levels further by year-end.

The third quarter is seasonally weaker in both North America and Europe. The pulp mill upgrade at Gratkorn and regular annual maintenance shuts in all three regions will negatively impact the results of the third quarter by approximately US$21 million when compared to the equivalent quarter last year.


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