Sappi shows signs of recovery on packaging and pulp in first quarter | 14
SAPPI’S share price fell by more than 6 percent on the JSE yesterday, despite the company recovering somewhat in the second quarter to the end of March, boosted by packaging and specialities performance, as well as a solid performance from the dissolving pulp (DP) segment. The share closed at R48.05.
The diversified woodfibre company fell into a loss of $23 million (R331m) in the second quarter to the end of March, down from a profit of $2m reported in the second quarter of last year. Its earnings before interest, tax, depreciation and amortisation (Ebitda), excluding special items, fell to $112m, compared with last year’s $131m, but an improvement from $98m reported in the first quarter.
Chief executive Steve Binnie said Sappi was pleased with the steady recovery from the ongoing challenges of the Covid-19 pandemic.
“Ebitda continued to improve quarter-on-quarter from a low of $26m in our third quarter of 2020 through $98m in the previous quarter to $112m for the current quarter, with further improvement expected for our third quarter,” Binnie said.
The group attributed the recovery in the quarter to a strong packaging and specialities performance, combined with solid results from DP, but it was offset by the weak demand and margin squeeze in graphic paper.
Binnie said a positive highlight for the quarter was the continued rapid recovery of DP markets, with Chinese market prices at their highest levels since May 2012.
“The key factors supporting the positive sentiment in the sector in clude continued tight DP supply, low viscose staple fibre inventory levels throughout the textile value chain, improved apparel retail demand in the US and Asia, which favourably impacted all textile fibre prices, higher paper pulp prices and a continued weaker US$/Renminbi exchange rate,” he said.
The sales volumes in the packaging and specialities segment increased by 25 percent compared with last year because of a further ramp-up of board products in North America and the strong demand for containerboard in South Africa.
Sappi said although demand for most categories in Europe was positive, some non-essential products were affected by Covid-19-related lockdowns.
“The North American and South African regions recorded strong improvements in profitability. This was in contrast to Europe, where extended lockdowns and restrictions on economic activity hindered the performance.
“Covid-19 also severely affected global shipping and container availability, which impacted sales volumes in a number of product categories,” Binnie said.
Its earnings per share excluding special items was a loss of 1 US cent a share compared with earnings of 4 US cents reported last year.
Its net debt increased to $2.07 billion, up from $1.88bn compared to the second quarter of last year.
Looking ahead, Binnie said given the favourable market conditions for DP and packaging and speciality papers, they expect the third-quarter Ebitda to improve relative to the second quarter.
“However, earnings in the European business will be lower due to rising pulp costs,” he said.