Sappi shows positive results for Q2 FY2022
Commenting on the group’s results, Sappi Chief Executive Officer Steve Binnie says, “I am very proud of the excellent performance during the quarter particularly in light of the impact of Covid-19 in the last two years and the global economic turmoil. Tight global paper markets were the principal factor behind the quarter’s success and enabled the implementation of higher selling prices which offset extraordinary cost inflation. The Russian-Ukrainian war triggered renewed volatility in global commodity markets and further disrupted already constrained global supply chains, which intensified cost inflation across all regions and all product segments.
Despite these headwinds we were able to improve EBITDA by 40% on the prior quarter from US$240 million to US$337 million and three-fold over the equivalent quarter in 2021. Net debt was reduced to US$1,793 million (from US$2,070 million a year ago) and earnings per share excluding special items for the quarter was 35 US cents, a further improvement on the 20 US cents in the prior quarter, providing further evidence of the steadily improving profitability of the group.”
Looking forward, Binnie stated: “In light of the favorable operating environment, the group is in a strong position to maintain the recent momentum and the underlying EBITDA for the third quarter should be consistent with that of the second quarter subject to the impacts of the annual maintenance shuts.”
Global logistical challenges continued unabated and posed headwinds for our export sales and raw material procurement in all regions. Substantial energy, raw material and delivery cost inflation in the quarter was offset by selling price increases in the paper business.
Packaging and speciality papers sales volumes grew 13% year-on-year, driven by robust global demand and renewed volume growth in Europe. Successful selling price increases and mix improvement offset rising costs and aided margin expansion for the segment. However, periodic contractual commitments deferred some increases in selling prices, particularly in Europe, that are required to restore margins to normalized levels.
A significant recovery in graphic paper demand combined with a reduction in supply, ongoing logistical challenges, and a prolonged labour strike at Finnish paper mills led to an unprecedented global shortage of graphic paper. Sales volumes for the segment increased 12% year-on-year and the tight market dynamics allowed all assets to run at full operating rates during the quarter. Successful implementation of a series of selling price increases and energy/freight surcharges offset significantly higher costs and facilitated margin restoration for the segment.
A highlight for the quarter was the turnaround of the European business, which achieved a strong second quarter EBITDA of €124 million. The success was despite geopolitical uncertainty and significant input cost inflation.
The North American business delivered another excellent quarter with EBITDA of US$114 million. Tight markets and significantly higher year-on-year selling prices across all product segments contributed to this achievement. However, cost inflation and ongoing logistical supply chain challenges remained as noteworthy headwinds for the business.
The South African business was impacted by significant cost increases, lower net selling prices for DP and production challenges at Saiccor Mill. Year-on-year variable costs rose 23% due to inflation across all categories. Expanding fruit export markets and constrained paper imports into South Africa contributed toward healthy market dynamics for packaging paper. Customer demand exceeded supply for all paper categories.