Sappi, the wood fibre product group, yesterday posted record earnings before interest, taxes, depreciation and amortisation (Ebitda) in the fourth quarter, exceeding previous records, while it also resumed paying dividends.
In late afternoon trade, the shares were up nearly 5% at R56.55 yesterday after the JSE-listed group said it achieved Ebitda of $1.34 billion (R24bn) for the period ended September 2022, exceeding the previous record of $1.05bn.
Sappi reported a net profit of $536 million for the period under review, compared with a net profit of $13m for the prior year.
The group also said it would resume the payment of dividends from cash reserves, as it declared a dividend of $0.15c a share, to be paid in January 2023.
Earnings per share, excluding special items, rose to $1.38, compared with $0.15 in the previous financial year.
In an interview, Sappi CEO Steve Binnie said: “These are the best results in history from a quarterly and an annual perspective. You can imagine the lows of Covid-19 two years ago and all the challenges that brought.
“We were thrilled with the performance this year and it’s repositioning this company with the debt levels down to where we are,” he said.
“We’ve been focused on reducing debt. We knew that our costs were rising dramatically throughout the year, across the board because of global inflation. We had to take that challenge head-on, and put through a series of selling price increases to offset those higher costs.
“At the same time, we’ve been repositioning this business over several years, reducing our exposure to graphic paper, and increasing investments in packaging. This is a culmination of a lot of great work done over a number of years,” he said.
On the balance sheet, Binnie said Sappi came in just more than $1.1bn; prior it was $1.9bn.
“That’s a huge reduction, and if you went back a few months before that, it was over $2bn. We halved our debt in the last 18 months, which is a tremendous effort. We want to keep our debt to approximately a billion or less,” he said.
Binnie said the company’s Thrive25 strategy had been achieved. And while the next year might be a little tough with all the economic challenges that might come, they had made Sappi more resilient.
Sappi had committed to converting paper machines in the US, away from graphic papers to packaging.
“That is another important step in our strategy, to move our business to a higher margin, to a more resilient, steady, less volatile business. It’s going to give us additional capacity and will also reduce our exposure to graphics,” Binnie said.
He said the project was important and would cost the company $418m. The cost would be spread between now and 2025.
According to the group, the graphic paper segment continued to benefit from favourable market conditions, which supported quarter-on-quarter sales price increases. However, extraordinary cost inflation in Europe, particularly for energy, reduced segmental margins relative to the prior quarter.
“Graphic paper sales volumes declined 4% year-on-year due to lower inventory levels and a shift towards packaging and speciality paper grades. Order activity began slowing towards the end of the quarter as consumer sentiment was dampened by inflationary pressures and a challenging economic environment,” Sappi said.
The packaging and speciality papers segmental year-on-year sales volumes were up 3%, constrained by an extended shut in South Africa during the quarter for a quality and product range upgrade to the container board machine at the Ngodwana Mill, combined with low inventory levels in North America and South Africa following the strong sales earlier in the year.
Looking ahead, the group said macro-economic uncertainty had increased considerably in recent weeks. Ongoing lockdowns in China, the geopolitical turmoil in Europe and unprecedented inflation were increasing the likelihood of a global recession in 2023.
“This poses a risk to our business as weakening consumer sentiment and diminishing discretionary spend will likely weaken demand in our graphic paper and dissolving pulp segments in upcoming quarters,” Sappi said.
BUSINESS REPORT