12152018Sat
Last updateSun, 09 Dec 2018 4am
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Sappi delivers solid full year and improved 4th quarter results while completing higher margin conversion and dissolving wood pulp debottlenecking projects

Commenting on the results, Sappi Chief Executive Officer Steve Binnie said: "I am very satisfied that we have delivered results for the year in line with that of the prior year, notwithstanding the downtime related to the completion of several large strategic growth projects. These projects facilitated a further shift in the product mix of the group towards higher margin and growth segments."

Reflecting on the 4th quarter, Binnie indicated: "We delivered increased earnings having resolved the 3rd quarter production challenges and benefited from higher graphic paper prices and stable demand across most product categories. To further build and strengthen our market leading position, during the quarter we launched the Verve brand as the umbrella brand for our DWP products, emphasising Sappi's commitment to producing a natural fibre sourced from sustainably managed forests."

Binnie confirmed that: "Strong market demand for dissolving wood pulp (DWP) and speciality and packaging papers ensured our production capacity in these grades was fully utilized, further supporting our decision to invest in additional capacity in these business segments. We were also able to reduce net finance costs by 15% due to lower average debt levels during the year.

I am also pleased that we have been able to declare an increased dividend of 17 US cents."

Turning to the next quarter, Binnie stated: "having completed the significant projects in 2018 to convert paper machines to higher margin and growing packaging grades, in addition to the debottlenecking of both Saiccor and Ngodwana Mills, we expect EBITDA in the first quarter of financial year 2019, given current exchange rates, to be comfortably higher than that of 2018."

Financial summary for the quarter and full year

EBITDA excluding special items
For the quarter US$224 million (Q4 FY17 US$221 million)
For the year US$762 million (FY17 US$785 million)
Profit for the period
For the quarter US$107 million (Q4 FY17 US$102 million)
For the year US$323 million (FY17 US$338 million)
EPS excluding special items
For the quarter 19 US cents (Q4 FY17 19 US cents)
For the year 60 US cents (FY17 64 US cents)
Net debt US$1,568 million (FY17 US$1,322 million)
Dividend of 17 US cents declared (FY17 15 US cents)
The major factors which influenced the fourth quarter's results include:

Dissolving wood pulp (DWP) demand and market pricing remained healthy;
Sales volumes were impacted by low inventory levels due to lost production volumes in the third quarter following start-up issues after mill upgrade projects;
Demand for specialities and packaging papers continued to grow in each region and across all major product categories. EBITDA margins were impacted by higher raw material prices and delayed price increases due to long-term contracts typical in this market;
The qualification process of the paperboard grades at the Somerset and Maastricht mills is underway, with positive customer response to date. This process did however negatively impact average pricing and costs for the quarter.
The European business delivered a good result in a seasonally stronger quarter.
The Cham integration continues to exceed expectations, with EBITDA contribution ahead of expectations after 7 months.
Higher coated paper and DWP prices and the ramp-up of sales volumes from Somerset PM1 led to an improved result for Sappi North America.
In South Africa, an increase in Rand selling prices offset variable costs pressures. Sales volumes were in line last year.
European and export printing and writing papers markets were stable, allowing for the implementation of coated paper price increases that have offset much of the rise in paper pulp costs. In the US, sales volumes increased in all product categories and higher graphic paper prices were achieved;
The potential benefits of a weaker Rand/US Dollar exchange rate in the quarter were reduced by currency hedges on DWP sales entered into earlier in the year when the exchange rate was much stronger.
Outlook

The debottlenecking of Saiccor, Ngodwana and Cloquet as well as fewer production disruptions in 2019 should lead to increased DWP sales volumes to meet growing demand. DWP spot prices are forecast to remain range-bound at current levels in the coming year as VSF prices are expected to be under pressure from excess VSF capacity, while paper pulp prices which are forecast to remain at high levels should provide support.

Demand for speciality and packaging papers continues to grow, driven by increasing consumer preference for paper based packaging and legislative changes promoting recycling and the use of recyclable materials. The completion of the conversion projects at Somerset and Maastricht in the past year will allow us to increase production of paperboard grades to serve this growing market.

Industrywide conversion and closure of graphic paper machines in the US and Europe are expected to keep the markets balanced in the coming year should demand contract at similar levels to those of the past few years. Recent European data however, indicates that a potential downturn may be realised in 2019. Cost control measures will be implemented in order to support margins as we manage the price elasticity in our paper markets.

Capital expenditure in 2019 is expected to increase to US$590 million as we proceed with the Saiccor 110kt expansion having recently received initial EIA approval for the project, complete the Saiccor woodyard upgrade, convert Lanaken PM8 from coated mechanical to woodfree paper production and upgrade the Gratkorn Mill.
www.sappi.com

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