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Sappi posts record full-year Ebitda, resumes dividend payment

10th November 2022

By: Chanel de Bruyn

Creamer Media Senior Deputy Editor Online

     

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Renewable resources company Sappi achieved record earnings before interest, taxes, depreciation and amortisation (Ebitda) of $1.34-billion for the financial year ended September 30 – exceeding the previous record of $1.05-billion for the group's financial year ended September 30, 2000.

Ebitda was also significantly higher than the $532-million reported for the 2021 financial year.

“I am very pleased with Sappi’s exceptional performance this past year. Once again, the dedication and resilience of the Sappi team shone through.

"The outstanding performance was particularly noteworthy within the context of a challenging macroeconomic environment.  Significant headwinds included extreme weather-related events, lingering Covid pandemic effects in China, as well as extraordinary global inflation, which was triggered by geopolitical turmoil and ongoing global supply chain disruptions.

"Amid this volatility, we demonstrated adaptability and persistence and remained committed to our Thrive25 strategy," Sappi CEO Steve Binnie noted in a November 10 report to shareholders.

Sappi said its Thrive25 strategic objective to reset the group's balance sheet had been largely achieved, with net debt having decreased by 40% year-on-year to $1.16-billion on the back of substantial cash generation and the positive impact of a weak euro:dollar exchange rate on the predominantly euro-denominated debt.

"This is the [group's] lowest net debt in 20 years," Sappi pointed out.

Meanwhile, the group posted a net profit of $536-million for the financial year under review, compared with a net profit of $13-million for the prior year.

Earnings a share, excluding special items, increased to $1.38, compared with $0.15 in the 2021 financial year.

The group will also resume the payment of dividends. Sappi's board declared a dividend of $0.15 a share, to be paid in January 2023, and to be funded from cash reserves.

Sappi noted that strong demand and the implementation of higher sales prices to offset rising costs, combined with a focus on product and customer mix optimisation, had supported margin expansion in all product segments during the year under review.

The strategic priority to invest in packaging and speciality papers in recent years also reaped rewards, with the segment having achieved record Ebitda of $359-million for the year under review, compared with $214-million in the prior year. 

Sales volumes increased by 9%, driven by robust global demand and renewed growth in Europe, but were constrained by available capacity and low levels of inventory in South Africa and North America where demand exceeded supply.

Meanwhile, sales volumes for the pulp segment increased by 15% year-on-year on the back of strong market demand and improved logistics as Sappi had secured regular breakbulk shipping alternatives for its South African exports.

The graphic paper segment also generated record Ebitda of $650-million for the period under review. 

"The remarkable turnaround from the lows of 2020 was driven by a number of factors which led to an unprecedented global shortage of graphic paper. These included a surge in demand as economic activity normalised post-Covid and a very tight market balance due to a combination of chronic global logistical challenges and reduced supply," Sappi pointed out.

Looking ahead, Sappi said it recognised that global macroeconomic volatility and uncertainty were significant risks to its business. The group has, therefore, set a new long-term strategic objective to target net debt of about $1-billion. 

"This materially lower debt level will provide more flexibility to withstand market downturns and, combined with strong anticipated future cash generation, should provide sufficient opportunity to fund growth in our targeted market segments," it stated.

Binnie said the deleveraging of Sappi's balance sheet, combined with substantial cash reserves, mean it is well-placed to navigate any market downturn.

"We remain encouraged by the increasing resilience of our business and opportunities for growth in our packaging and speciality papers segment. 

"Notwithstanding the inflationary cost pressures and weakening demand in some product segments, we anticipate that Ebitda for the first quarter of the 2023 financial year will be above that of the equivalent quarter in the 2022 financial year," he added.

Edited by Creamer Media Reporter

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