SAPPI’S profit halved to $259 million, or roughly R4.9 billion, (from $536m) for the year to September, but a stronger balance sheet with much reduced debt and healthy cash reserves should provide the flexibility to navigate the cyclical downturns, CEO Steve Binnie said yesterday.
The satisfactory performance in a turbulent trading environment that had followed record profits a year before saw the share price rise a strong 6.6% to R42.09 on the JSE yesterday morning. The share price was R54.93 a year ago.
The group also announced that Nkululeko Sowazi, who became a board member on October 1, 2022, will succeed Sir Nigel Rudd as chairperson from February 8, 2024. Sir Nigel retires after first being appointed to the board in 2006 and becoming chairperson in 2016.
Sowazi is the executive chairperson and co-founder of Tiso Investment Holdings, has served on numerous board and is lead independent director of Grindrod. He also chairs the social, ethics and sustainability committee of MTN and chairs the Sanlam Private Equity Fund investment committee. He previously served on the boards of Exxaro Resources, Aveng and the Eris Property Group.
Lead independent director Valli Moosa said Sir Nigel’s leadership had enabled Sappi to drive its growth strategy through expanded packaging and speciality papers capacity and increased share of earnings, while reducing exposure to declining graphic paper markets, alongside a significant debt reduction, in stormy markets that included high inflation and interest rates, Covid-19 and macro-economic disruptions.
Binnie said in an interview that the results for the past year were satisfactory given the widespread disruptions caused by geopolitical instability, weak global growth, rising interest rates, an under-performing Chinese economy and following the record results of the previous financial year.
The group reported a $40m loss in the fourth quarter to September 30, but this was mainly due to write-downs relating to the planned closures of the Stockstadt and Laneken Mills in Europe, which would likely impact some 1200 employees in the group.
The total dividends for the year came to 52 US cents (138 US cents). On November 8, 2023, directors approved a dividend of 15 US cents per share.
Binnie said the South Africa operations produced record earnings before interest, tax, depreciation and amortisation (Ebitda), while the US operations also performed well reporting its second-highest Ebitda, and it was in Europe where the brunt of difficult trading conditions was felt and action was being taken through the closure of the two mills which would eliminate some 800 000 tons of capacity from the market.
He said some 1200 jobs would be impacted and consultations were under way. Demand for graphic papers had experienced a permanent structural decline, due mostly to digitisation, he said.
He said the destocking in packaging had taken longer than anticipated, but he hoped it would be complete before the end of the quarter. There had been a gradual improvement in demand for packaging, he said. The outlook for the textile segment was also positive, both in pricing and demand.
Viscose staple fibre (VSF) operating rates in China improved steadily as economic activity resumed from the third quarter onwards. Operating rates in the VSF industry remained at a high level through the remainder of the year and downstream VSF inventories dropped below historical levels, which supported demand for dissolving pulp.
In response to the headwinds of the past year, Binnie said: “We concentrated on preserving selling prices, efficiently managed our capacity and inventories to optimise working capital and implemented various cost-saving initiatives across our operations, all of which positively contributed to the earnings performance.”
In the first quarter, the Ngodwana, Saiccor and Cloquet Mills would take scheduled maintenance shuts, which would have an estimated $40m impact on group profitability.
Group debt was at the lowest level in 30 years.