Sappi results for 3rd quarter ended June 2014 highlights continued year-on-year improvement in performance

JOHANNESBURG, July 31, 2014 /PRNewswire/ --

Financial Summary for the quarter

  • Continued year-on-year improvement in quarterly performance
  • Usutu and Nijmegen Mill transactions completed
  • Specialised Cellulose business remains sold out
  • EPS 3 US cents (Q3 2013 loss of 9 US Cents)
  • EBITDA excluding special items US$140 million (Q3 2013 US$88 million)
  • Net debt US$2,286 million (Q3 2013 US$2,331 million)

Commenting on the result, Sappi Chief Executive Officer Steve Binnie said:
"It is pleasing to note that the group has continued the trend of improving year-on-year performance, with EBITDA excluding special items of US$140 million, operating profit excluding special items of US$67 million and profit for the period of US$17 million.   

"The European business had a solid quarter in a seasonally slow period, with lower variable and fixed costs arising from cost cutting initiatives offsetting weaker graphic paper prices. Demand for coated woodfree paper was stable, but coated mechanical paper continues to be weak.

"The North American business was impacted by a number of planned and unplanned outages at the pulp mills, as well as a continuation of the weak pricing in the coated paper markets.  Price increases for coated woodfree web paper were announced during the quarter and this will bring some relief to a difficult market in the fourth financial quarter.

"The Southern African paper business improved on the prior quarter performance due to lower fixed costs, whilst variable costs were negatively impacted by the weaker Rand.

"The Specialised Cellulose business had a reasonable quarter, impacted by the planned annual maintenance shut at the Cloquet Mill.  As expected, dissolving wood pulp prices experienced increased downward pressure due to weaker viscose staple fibre prices.  Strong shipment volumes contributed towards an EBITDA excluding special items of US$70 million.

"Capital expenditure for the full year is expected to remain below US$300 million and with the proceeds of the Usutu sale and positive cash generation expected in the fourth quarter, we anticipate net debt to end the year close to US$2 billion

"The fourth quarter is a seasonally stronger quarter and we believe that the result for the quarter will continue the trend of improved year-on-year quarterly performance which we have experienced throughout 2014."

 


Quarter ended

Restated1

Jun 2014   Jun 2013  Mar 2014

Nine months ended Restated1

Jun 2014   Jun 2013

Key figures: (US$ million)






Sales

1,484

1,417

1,573

4,556

4,395

Operating profit excluding special items2

67

5

95

222

113

Special items – (gains) losses2

(2)

19

(4)

(16)

(16)

EBITDA excluding special items2

140

88

171

458

373

Profit (Loss) for the period

17

(47)

32

67

(33)

Basic earnings (loss) per share (US cents)

3

(9)

6

13

(6)

Net debt2

2,286

2,331

2,248

2,286

2,331

Key ratios (%)






Operating profit excluding special items to sales

4.5

0.4

6.0

4.9

2.6

Operating profit excluding special items to capital employed (ROCE)

7.8

0.5

11.0

8.7

4.2

EBITDA excluding special items to sales

9.4

6.2

10.9

10.1

8.5

Return on average equity (ROE)2

5.9

(13.5)

11.3

7.8

(3.1)

Net debt to total capitalisation2

66.3

63.5

66.2

66.3

63.5

Net asset value per share (US cents)

222

257

219

222

257







1 Restated for the adoption of IAS 19 (Revised) Employee Benefits and IFRS 10 Consolidated Financial Statements. Refer to the published results for further details.







2 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

During this seasonally slow quarter in Europe, overall sales volumes were approximately 2% lower year-on-year, with growth in speciality paper volumes and stable coated woodfree volumes.  The coated mechanical market remains weak, both domestically and globally. Savings in variable, fixed and logistics costs enabled the business to improve the year-on-year performance despite the lower sales prices. An agreement was reached to dispose of the Nijmegen mill to an affiliate of the American Industrial Acquisition Corporation (AIAC).  The mill will now manufacture packaging paper and will no longer be engaged in the coated graphic paper business beyond a 6 month transition arrangement for 52,000 tonnes.

The graphic paper markets in North America continued to be characterised by weak pricing during the quarter, whilst our volumes were flat year-on-year.  Price increases for web products were announced during the quarter and will improve our results going forward. The North American specialities business is experiencing improved sales to Europe, which is offsetting weaker Chinese markets.

The performance of the Southern African business improved compared to the equivalent quarter last year; a quarter impacted by the conversion to dissolving wood pulp at Ngodwana.  The increased dissolving wood pulp sales from Ngodwana, higher average Rand pricing for dissolving wood pulp and improved profitability from the paper packaging business all contributed to the improvement.

Finance costs of US$42 million were slightly below those of the restated equivalent period last year.

Earnings per share for the quarter were 3 US cents (including a gain of 1 US cent in respect of special items), compared to a loss of 9 US cents (including a charge of 3 US cents in respect of special items) in the restated equivalent quarter last year.

Capital expenditure in the quarter declined to US$57 million compared to US$174 million a year ago, reflecting the completion of the expenditure on the dissolving wood pulp projects.

Net debt of US$2,286 million increased by US$38 million compared to the prior quarter, mainly as a result of increased working capital.  Proceeds from the sale of the Usutu assets for ZAR1 billion were received after quarter-end and will be utilised to reduce debt.

Outlook

The stronger than expected coated woodfree paper market, coupled with excellent ongoing cost control and focus, has led to steady progress in the European business, an important cash contributor to the group.  Two important capital projects at Gratkorn and Kirkniemi are underway, allowing us to make further headway in improving the financial performance of this business.

The North American business has experienced an extremely difficult year with cost and price pressures in graphic paper, inclement weather and some operational challenges.  There are early signs that the graphic paper business will see improved returns with good volumes and higher pricing going forward.  Management focus on cost and operations will aid further improvement.

The South African paper packaging business continues to benefit from healthy demand due to a good fruit export season.

Due to the competitive nature of the dissolving wood pulp market and weak viscose staple fibre pricing, we are experiencing continued pressure on our prices.  However, demand remains strong and our mills are essentially sold out for the remainder of the year.

The full results announcement is available at www.sappi.com
There will be a conference call to which investors are invited. Full details are available at www.sappi.com using the links Investor Info; Investor Calendar; 3Q14 Financial Results

Forward-looking statements

Certain statements in this release that are neither reported financial results nor other historical information, are forward-looking statements, including but not limited to statements that are predictions of or indicate future earnings, savings, synergies, events, trends, plans or objectives. The words "believe", "anticipate", "expect", "intend", "estimate", "plan", "assume", "positioned", "will", "may", "should", "risk" and other similar expressions, which are predictions of or indicate future events and future trends and which do not relate to historical matters and may be used to identify forward-looking statements. You should not rely on forward-looking statements because they involve known and unknown risks, uncertainties and other factors which are in some cases beyond our control and may cause our actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements (and from past results, performance or achievements). Certain factors that may cause such differences include but are not limited to:

  • the highly cyclical nature of the pulp and paper industry (and the factors that contribute to such cyclicality, such as levels of demand, production capacity, production, input costs including raw material, energy and employee costs, and pricing);
  • the impact on our business of the global economic downturn;
  • unanticipated production disruptions (including as a result of planned or unexpected power outages);
  • changes in environmental, tax and other laws and regulations;
  • adverse changes in the markets for our products;
  • the emergence of new technologies and changes in consumer trends including increased preferences for digital media;
  • consequences of our leverage, including as a result of adverse changes in credit markets that affect our ability to raise capital when needed;
  • adverse changes in the political situation and economy in the countries in which we operate or the effect of governmental efforts to address present or future economic or social problems;
  • the impact of restructurings, investments, acquisitions, dispositions and other strategic initiatives (including related financing), any delays, unexpected costs or other problems experienced in connection with dispositions or with integrating acquisitions or implementing restructuring or strategic initiatives (including our announced dissolving wood pulp conversion projects), and achieving expected savings and synergies; and
  • currency fluctuations.

We undertake no obligation to publicly update or revise any of these forward-looking statements, whether to reflect new information or future events or circumstances or otherwise.

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SOURCE Sappi Limited



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