Sappi delivers strong first quarter; announces major investments in speciality packaging grades

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Sappi Limited

Feb 08, 2017, 01:07 ET

JOHANNESBURG, Feb. 8, 2017 /PRNewswire/ -- 

Financial summary for the quarter

  • EBITDA excluding special items US$201 million (Q1 2016 US$175 million)
  • Profit for the period US$90 million (Q1 2016 US$75 million)
  • EPS excluding special items 16 US cents (Q1 2016 13 US cents)
  • Net debt US$1,338 million, down US$396 million year-on-year

Investments to enhance competitive advantage and increase speciality packaging capacity

  • Increased capability to produce paper-based packaging at Somerset Mill in the USA
  • Lightweight packaging and speciality paper capacity to increase at Alfeld Mill in Germany
  • Conversion of Maastricht Mill to solid bleach board facility
  • Transition Lanaken Mill PM8 to support coated woodfree business
  • European cumulative coated graphic paper reduction of 200,000tpa by 2020

Commenting on the result, Sappi Chief Executive Officer Steve Binnie said:
"I am pleased with our solid operating performance for this quarter. Group profit increased by 20% and EBITDA by almost 15%. We have reduced net debt by a further 23% compared to our levels a year ago. The past quarter saw greater sales volumes across all major categories, higher dissolving wood pulp (DWP) prices, benefits from cost savings initiatives but also lower selling prices for graphic paper.

"With DWP markets experiencing strong demand, the Specialised Cellulose business continued to generate good returns during the quarter, with EBITDA excluding special items up 28% on last year. Our European business once again delivered strong results due to variable cost control and year-on-year growth of 26% in the specialities categories. In the US we increased sales volumes and gained market share, despite an overall decline in coated paper demand and our South African business delivered excellent margins due to higher DWP and paper prices, despite lower containerboard and tissue sales in December as customers worked to reduce inventory stock."

With regards to the investments announced by Sappi, he stated:
"To maintain our strong momentum and support our strategy for growth we have today announced a number of key investments. With demand for speciality packaging grades remaining robust we will be undertaking a number of significant projects over the next two years in order to increase our production capacity in these grades. Our decision demonstrates our clear commitment to the consumer packaging market and our focus on maintaining our leadership in coated paper production in both North America and Europe.

"In North America we will be investing approximately US$165 million to upgrade PM1 at the Somerset Mill. The project will enhance the flexibility of the machine, allowing it to act both as a strong platform for growth in paper-based packaging whilst equally maintaining Sappi's leadership position in the graphic paper market. The project will increase the overall capacity of the mill by 180,000tpa and is expected to be completed in 2018.

"In Europe we will undertake a number of projects that will result in a significant increase in our speciality packaging paper capacity and capability as well as support our drive to be the lowest cost producer and best service provider in graphic papers. The Maastricht Mill will be converted to focus predominantly on speciality grades and we will invest at Ehingen and Alfeld Mills to enhance the specialities offerings.  Lanaken Mill PM8 will progressively transition to coated woodfree production over the next three years in line with the expected decline in the coated mechanical market. In total, these projects will cost approximately US$140 million over a three year period." 

Outlook
Demand for DWP remains favourable and pricing has recovered during January. Therefore a higher average Dollar price is expected in the second quarter of 2017. 

Graphic paper markets continue to be weak in Europe and the United States, however prices have started to stabilise. Raw material costs have started to rise, particularly for paper pulp, energy and chemicals, but we remain focused on various efficiency and procurement initiatives in order to mitigate the effect of these increased costs.

Based on current market conditions, in particular the recent strength of the Rand, continued strength in US Dollar pricing for DWP and further weakness in graphic paper demand and pricing in Europe and the US, we expect the group's operating performance for the second quarter to be broadly in line with that of 2016. Further Rand strength could result in a weaker performance for the remainder of the year. The board is mindful of uncertainty wrought by global political events.

Capital expenditure in 2017 is expected to be approximately US$350 million as we continue the debottlenecking of DWP production at Saiccor and Ngodwana Mills, and undertake the first phases of the speciality packaging investments outlined previously.

We expect to reduce net debt levels further during the course of 2017 and it remains our intention to repay the maturing 2017 bonds from current liquidity sources in order to lower future finance costs.

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; 1Q17 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 a 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 and other strategic initiatives 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.

About Sappi Limited
A global leader in paper, paper pulp and dissolving wood pulp solutions, Sappi Limited (JSE: SAP and in the Top 40 on the JSE), is headquartered in Johannesburg, South Africa; has over 12,000 employees; manufacturing operations on three continents, in seven countries (seven mills in Europe, three mills in America and four mills in South Africa) and customers in over 150 countries worldwide.

 

Sappi works closely with customers to provide relevant and sustainable paper, paper pulp, dissolving wood pulp and biomaterial products and related services and innovations. Our market-leading range of paper products includes: coated fine papers used by printers, publishers and corporate end-users; casting release papers used by suppliers to the fashion, textiles, automobile and household industries; and in our Southern African region newsprint, uncoated graphic and business papers, premium quality packaging papers and paper grade pulp. Our dissolving wood pulp products are used worldwide by converters to produce viscose fibre, pharmaceutical products as well as a wide range of household and consumer products.

 

In FY2016 we produced approximately: 5.4 million tons per year of graphic and printing paper and packaging and speciality paper; 2.3 million tons per year of market paper pulp, and 1.3 million tons per year of dissolving wood pulp.

 

We continue to grow into a profitable and cash-generative diversified business with an exciting future in woodfibre, a renewable resource.

 

For further information visit www.sappi.com

 

  

SOURCE Sappi Limited

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