JOHANNESBURG--(BUSINESS WIRE)--Commenting on the group’s results, Sappi Chief Executive Officer Steve Binnie said: “Following a strong last quarter, I am pleased we were able to exceed our expectations for the year with Adjusted EBITDA* of US$684 million for the year ended September 2024. Our strong performance occurred against the backdrop of the subdued macroeconomic environment, ongoing low consumer confidence, and persistent geopolitical uncertainty.
A key highlight was the pulp segment’s strong performance, driving record profitability for the South African region. However, paper markets remained subdued, with the expected recovery in demand after the prolonged destocking phase of 2023 unfolding slower than anticipated. Significant fixed costs savings were achieved through our strategic rationalisation actions.”
The principles of our Thrive strategy remain a focus on sustaining our financial health, enhancing trust and driving operational excellence. Growing the business in the packaging and speciality papers segment with the conversion and expansion of Somerset PM2 is a vital part of the plan which will offset the decline in the graphic papers markets. The project is on schedule, with commissioning set to begin early in the third quarter of FY2025.
Demand for dissolving pulp (DP) remained strong throughout the year, with selling prices rallying through the second half. Favourable market conditions were supported by a tight supply landscape and strong demand buoyed by high viscose staple fibre (VSF) operating rates and low inventory levels. Supply was tight following closures at competitors and little additional capacity added in the past two years.
Graphic papers sales volumes were up 2% from the previous year but the pace of recovery slowed as the year progressed, which suggests a likely permanent structural shift in demand. Lower selling prices were partially mitigated by variable cost savings. The closure of the Stockstadt and Lanaken Mills reduced the fixed cost base and enhanced European capacity utilisation, contributing to improved profitability of the segment compared to the prior year.
Demand for packaging and speciality papers products improved steadily through the year as the destocking cycle of 2023 reversed, leading to an overall 8% increase in sales volumes compared to the prior year. Market dynamics varied across the regions, with North America and South Africa experiencing stronger recoveries and returning to full operating rates compared Europe, where downstream demand remained suppressed due to lingering poor consumer sentiment. Although higher sales volumes and variable cost savings were achieved, these gains were offset by lower selling prices, leading to margin erosion for the segment.
Sustainability lies at the heart of our Thrive strategy as we aim to be a trusted, transparent, and innovative partner in advancing a biobased circular economy. We are proud of the progress made toward our Planet and People targets with steady year-on-year improvements. We remain committed to providing a safe and inclusive workplace and promoting sustainable practices to protect the environment.
Looking forward, Binnie stated: “Challenging global macroeconomic conditions and ongoing geopolitical tensions continue to cause disruptions in our markets. Additionally, supply chain instability and fluctuating input costs have added pressure to both production and pricing strategies, making market dynamics unpredictable. In this environment, we are sharpening our focus on operational excellence by proactively managing capacity utilisation and vigorously pursuing cost saving opportunities.
Notwithstanding the ongoing global macroeconomic challenges, we anticipate that the Adjusted EBITDA for the first quarter of FY2025 will be significantly above that of the equivalent quarter of the prior year.”
Financial summary for the quarter and full year
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Adjusted EBITDA*
- For the quarter US$226 million (Q4 FY23 US$168 million)
- For the year US$684 million (FY23 US$731 million)
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Profit for the period
- Profit for the quarter US$79 million (Q4 FY23 loss US$40 million)
- Profit for the year US$33 million (FY23 US$259 million)
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Adjusted EPS**
- For the quarter 15 US cents (Q4 FY23 6 US cents)
- For the year 41 US cents (FY23 52 US cents)
- Net debt US$1,422 million (FY23 US$1,085 million)
- Dividend 14 US cents per share (FY23 15 US cents per share)
Operating performance for the fourth quarter was substantially better than last year and the group achieved Adjusted EBITDA of US$226 million. A strong performance from the pulp segment and significantly lower wood costs in South Africa were the main drivers of the success. As a result of the lower wood prices, the group incurred a negative plantation fair value price adjustment of US$31 million.
The pulp segment benefited from strong demand, higher selling prices and lower variable costs, which boosted margins to a healthy 30%. The combination of high operating rates for VSF producers, low downstream VSF inventories and rallying textile fibre prices provided positive support for hardwood DP market prices which increased by a further US$18 per ton during the quarter.
Sales volumes for packaging and speciality papers were 16% above the prior year driven primarily by a recovery in North American paperboard volumes following the destocking cycle in 2023. European markets remained lacklustre with weak consumer sentiment continuing to weigh on demand in the region. The profitability of the segment improved year-on year as the higher sales volumes offset lower selling prices and higher raw material costs.
Underlying global demand for graphic papers remained suppressed but sales volumes for the fourth quarter benefited from a seasonal boost in North America. The higher sales volumes and substantial fixed cost savings from the European region offset lower selling prices, lifting profitability of the segment compared to the prior year.
The European region experienced a challenging quarter with weak economic conditions and overcapacity in graphic papers markets creating significant headwinds for the business. However, the closure of the Stockstadt and Lanaken Mills reduced fixed costs and enabled the region to record Adjusted EBITDA of €36 million, which was significantly better than the prior year. The recovery of paper markets was slow and although sales volumes were slightly higher than a year ago, selling prices were under pressure.
The North American region delivered Adjusted EBITDA of US$71 million for the quarter, which was a solid performance within the context of a slower than anticipated recovery in paper markets following the destocking cycle of 2023. Higher paper sales volumes and improved pulp selling prices were partially offset by increased variable costs.
The South African region delivered an excellent quarter with Adjusted EBITDA of ZAR2,033 million enabling the region to achieve its third consecutive record performance. The success was largely driven by variable cost savings and favourable selling prices for DP. The Saiccor Mill recovered well after the mill temporarily halted production following an oxygen tanker explosion on site in July 2024. However, the lost production of approximately 15,000 tons contributed to the lower sales volumes for the quarter.
Dividends
On 6 November 2024, the directors approved a dividend (number 91) of 14 US cents per share which will be paid to shareholders on 13 January 2025. The dividend will be funded from cash reserves.
Outlook
Dissolving pulp market dynamics are expected to remain favourable through the first quarter as VSF operating rates remain high and inventory levels through the value chain are at historical lows. The DP supply landscape remains constrained with no new capacity anticipated in the short term. VSF pricing has lifted in recent weeks, providing further support for hardwood DP pricing which has maintained its upward momentum and increased a further US$8 to US$968 per ton since the end of the last quarter.
The long-term favourable outlook for our sustainably produced packaging and speciality paper products remains unchanged, and demand from our customers in South Africa and North America is healthy. Sappi is well positioned to benefit from the additional paperboard capacity from the conversion and expansion of Somerset PM2 that will start up in the third quarter. However, challenges persist in the short-term in Europe as market recovery is taking longer than expected and we therefore do not expect any meaningful volume recovery in the region in the first quarter of the financial year.
Graphic papers markets have experienced a permanent structural decline through FY2024 and are expected to resume the historical 6-8% decline through FY2025. Globally there is significant overcapacity. However, we have proactively reduced our capacity in Europe to align with our anticipated market share of demand and will remove further capacity in FY2025 as we ramp up the wet strength label production on Gratkorn PM9. In North America, post the conversion of Somerset PM2, we will continue to meet the needs of our graphic papers customers while fully utilising our assets.
Global pulp markets have diverged over the last few months. In stark contrast to the robust DP market, paper pulp markets have come under significant pressure as large new pulp capacity has been added and downstream paper demand remains suppressed. Lower paper pulp pricing will benefit our paper businesses, particularly in Europe where we purchase approximately 50% of our pulp requirements from the open market. We anticipate that the plantation fair value price adjustment for the first quarter will be negative due to lower wood costs in South Africa.
expenditure for FY2025 is estimated to be in the region of US$500 million and will include approximately US$157 million for the completion of the Somerset PM2 project. The project is expected to be completed by April 2025 and therefore most of the capex will be incurred in the first half of the financial year. On the 25 October 2024 the sale of the Sappi Lanaken Mill site was completed and proceeds of US$43 million were received.
* Adjusted EBITDA excludes special items and plantation fair value price adjustment
** Adjusted EPS excludes special items and plantation fair value price adjustment
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 Investors; Latest 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, identify forward-looking statements. In addition, this document includes forward-looking statements relating to our potential exposure to various types of market risks, such as interest rate risk, foreign exchange rate risk and commodity price risk. 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 adverse changes in global economic conditions;
- 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 restructurings or other strategic initiatives, and achieving expected savings and synergies;
- 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.
