JOHANNESBURG, South Africa , July 31, 2014 (Press Release) -
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.
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.
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.
[For the full report and financial tables, click here.]
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