Commenting on the group’s results, Sappi Chief Executive Officer Steve Binnie said: “Within the context of ongoing challenging global macroeconomic conditions and weak paper markets I am pleased that the group delivered EBITDA of US$156 million, which was in line with guidance provided in the prior quarter.”
Profitability was negatively impacted by approximately US$45 million due to the lower production volumes associated with the planned maintenance shutdowns at the Saiccor, Ngodwana and Cloquet Mills offset somewhat by a US$26 million positive plantation fair value price adjustment.
A key element of Sappi’s Thrive strategy is to reduce exposure to declining graphic paper markets and to ensure higher capacity utilisation in our graphic assets. The rationalisation of our European graphic papers capacity gained momentum during the quarter with the closure of the Stockstadt Mill and subsequent carouselling of sales volumes to alternate assets. The consultation process for the closure of the Lanaken Mill was also concluded late in the quarter.
Looking forward, Binnie stated: “Taking into account the protracted macroeconomic uncertainty, we anticipate that EBITDA for the second quarter of FY2024 will be similar to that of the first quarter.”
Financial summary for the quarter
• EBITDA excluding special items US$156 million (Q1 FY23 US$290 million)
• Net debt US$1,216 million (Q1 FY23 US$1,241 million)
• EPS excluding special items 8 US cents (Q1 FY23 30 US cents)
• Production at Stockstadt and Lanaken Mills in Europe permanently ceased
Paper markets remained unpredictable, and demand was still under pressure from low consumer confidence, high interest rates and ongoing geopolitical instability. While group sales volumes were down 12% compared to the prior year, selling prices during the quarter were reasonably stable for most products. We achieved significant year-on-year cost savings across all regions to mitigate some of the impact of lower sales.
Demand for dissolving pulp (DP) was robust, buoyed by high downstream viscose staple fibre(VSF) operating rates in China. Despite favourable demand and tight supply dynamics, the hardwood DP market price continued to be range bound by subdued VSF fibre selling prices due to sluggish textile and apparel markets, especially in Europe and China, influenced by low consumer confidence.
Profitability of the packaging and speciality papers segment was impacted by lower South African containerboard sales due to the planned maintenance shut at the Ngodwana Mill, sluggish underlying European demand and residual destocking across a number of product categories. On a positive note, demand for paperboard in North America showed signs of recovery as customer inventories normalised. Sales volumes for the segment were 14% below the prior year.