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Sappi continues with strong growth despite big headwinds

SAPPI’S Ebitda increased by more than threefold in its second quarter to end-March compared with the same quarter a year before. Picture: Supplied.

SAPPI’S Ebitda increased by more than threefold in its second quarter to end-March compared with the same quarter a year before. Picture: Supplied.

Published May 13, 2022

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WOODFIBRE products group Sappi produced its highest-ever earnings before interest, tax depreciation, and amortisation (Ebitda), despite the damage caused to its South Africa operations by the floods in KwaZulu-Natal and the global impact of Covid-19.

Chief executive Steve Binnie said in a telephone interview yesterday that the “remarkable bounce-back” since the lows of the Covid-19 pandemic two years before, coupled with the prospect of strong profitability for the rest of the year, attested to the resilience of the group.

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Sappi’s share price increased 2.2 percent to R61.61 on the JSE yesterday afternoon, on a day when the share prices of other commodity companies fell heavily.

A $28 million (R454.3m) special expense was expected to be reported in the third quarter to end-June arising out of damages from the floods, after claiming for insurances.

Buoyed by the strength of the rest of its global operations, the group did not expect a material impact on group Ebitda for the full financial year from the flooding, said Bonnie.

In early April, the group’s Saiccor, Tugela and Stanger Mills, as well as the export warehouse facilities at the Durban Port, were severely impacted by flooding and production was temporarily halted.

There was no material damage to any of the plants. Mill operations resumed from April 21, 2022.

Although the Port of Durban resumed operations, export deliveries might still be negatively impacted for some time due to damage to access roads, congestion and limited availability of vessel space, Binnie said.

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Meanwhile, Ebitda increased by more than threefold in its second quarter to end-March compared with the same quarter a year before.

Binnie said the strong performance was driven by tight global paper markets and higher selling prices had offset “extraordinary cost inflation”.

He said the Russian-Ukrainian conflict triggered renewed volatility in global commodity markets and further disrupted already constrained global supply chains. This had intensified cost inflation across all regions and all product segments.

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Ebitda improved 40 percent compared with the prior quarter to $337m, and three-fold over the equivalent quarter in 2021.

Net debt fell to $1.79bn from $2.07bn a year ago and earnings per share, excluding special items for the quarter, came to 35 US cents – an improvement on 20 US cents in the prior quarter.

“Underlying Ebitda for the third quarter should be consistent with the second quarter subject to the impact of annual maintenance shuts,” he said.

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Export sales and raw material procurement in all regions faced headwinds from ongoing global logistical challenges. Substantial energy, raw material and delivery-cost inflation in the quarter was offset by selling price increases in the paper business.

Sales volumes in the pulp segment increased by 9 percent compared to the prior year, from robust demand and improved logistics in South Africa.

Supply constraints due to unplanned production downtime caused rising global paper pulp prices, providing support for both dissolving pulp and bleached thermo-mechanical pricing.

Packaging and speciality papers sales volumes grew 13 percent year-on-year, driven by robust global demand and renewed volume growth in Europe.

A significant recovery in graphic paper demand combined with a reduction in supply, logistical challenges, and a prolonged labour strike at Finnish paper mills led to a global shortage of graphic paper.

Sales volumes for the segment increased 12 percent year-on-year, and the tight market allowed all assets to run at full operating rates during the quarter.

A highlight was the turnaround of the European business. The North American business delivered another good quarter.

The South African business was impacted by significant cost increases, lower net selling prices for dissolving pulp and production challenges at Saiccor Mill. Year-on-year variable costs rose 23 percent due to inflation across all categories.

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BUSINESS REPORT ONLINE

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