Glen Pearce most proud of Sappi’s ability to respond to challenging environment
Sappi’s profitability in all reporting segments exceeded expectations in the FY2021 first quarter.
Despite the challenges of the Covid-19 pandemic, Sappi announced in its first quarter results ended December 2020 that the company had outperformed the guidance for EBITDA provided at the end of the last quarter, as its profitability in all reporting segments exceeded expectations. EBITDA excluding special items for the quarter increased to $98 million compared to $82 million for the previous quarter.
“The current quarter results exceeded expectations as we experienced good demand recovery in our North American and dissolving pulp markets,” says Sappi CFO Glen Pearce. “Our packaging and speciality segment has been resilient throughout the pandemic and it continued to deliver during the current quarter.”
According to the results, these benefits were partially offset by the impact of the Ngodwana Mill maintenance shut, which had been rescheduled from the third quarter of last year, as well as the schedule Somerset Mill maintenance shut.
“The most challenging aspect has been managing the changing environment with a substantial reduction in demand followed by a staggered recovery and the associated complications,” Glen says.
He explains that the impact of the virus was not consistent across Sappi’s operating markets and managing the company’s assets to respond to the differing demand requirements tested their flexibility and ability to optimise available capacity.
The economic effects of the Covid-19 pandemic continued to affect performance with graphic sales still well below 2019 levels. It also severely affected global shipping and container availability considerably, and market prices rallied by $106 per ton through the quarter. The shipping challenges combined with the Ngodwana Mill shut and reduced production volumes from the Saiccor Mill due to the temporary halting of the calcium line, reduced dissolving pulp sales volumes by 16 percent compared to the same quarter last year.
The company further reported that, while North America recorded a strong recovery, soft coated mechanical demand in Europe, weak export markets in South America and Australasia and low selling prices were a drag on profitability in this segment.
South African newsprint and uncoated woodfree demand continued to be adversely impacted by the weaker domestic economy, and net finance costs were $34 million compared to $20 million in the equivalent quarter last year.
Earnings per share excluding special items for the quarter were a loss of one US cent. Cash flow and debt net cash generated for the quarter was zero, compared to a cash outflow of $278 million in 2020, which included the purchase of the Matane Mill for $158 million.
Capital expenditure of $82 million was lower than the $112 million last year, which was mainly due to the timing of payments for the expansion of dissolving pulp capacity at the Saiccor Mill.
Net debt for the quarter increased by $99 million to $2.056 million as a result of euro and rand denominated debt being converted at stronger quarter end exchange rates.
At the end of December 2020, liquidity comprised cash on hand of $410 million and $622 million from the committed revolving credit facilities in South Africa and Europe respectively.
“Last year we indicated that liquidity headroom was a key focus area for the group given the challenges experienced by the economic impact of the Covid-19 virus,” Glenn says. “We were successful in securing additional long-term finance under difficult circumstances and managed to increase our revolving credit facilities when markets were tightening.”
Additionally, he says that Sappi demonstrated good working capital management, recording a net inflow during the first quarter of the current fiscal year, which had traditionally been a net cash outflow due to seasonal fluctuations in the business.
“The rate of recovery in sections of our business has exceeded expectations and our ability to respond to the challenging environment is something I am most proud of.”
The company stated that, in spite of the unprecedented obstacles that have arisen as a result of the pandemic and through the dedication and resilience of its workforce, its mills remained fully operational.
“Last year was a significant learning experience and tested the resolve of many,” Glen says. “The recovery we experienced was encouraging and although we are still some way from a full recovery, we have a positive outlook and our long-term strategy remains intact.”