PaperAge Magazine

Sappi Reports Fiscal Fourth Quarter 2020 Results

Steve Binnie - Sappi Limited "The group's performance over the past year was severely impacted by the Covid-19 pandemic, the related government lockdowns and the ensuing economic after effects." – Steve Binnie, CEO, Sappi Limited.

Nov. 5, 2020 - Sappi today reported fiscal fourth quarter 2020 results.

Commenting on the group's results, Sappi Chief Executive Officer Steve Binnie said: "The group's performance over the past year was severely impacted by the Covid-19 pandemic, the related government lockdowns and the ensuing economic after effects. While the first half of the year was satisfactory given that we started the year with dissolving pulp prices at historic lows, the third quarter saw the full impact of Covid-19 before a recovery began in the fourth quarter, in particular for Dissolving Pulp (DP). The improvement is further evidenced by the quarter-on-quarter improvement in EBITDA from US$26 million to US$82 million."

"Throughout this unprecedented time the health and safety of our employees remained paramount. A comprehensive Covid-19 action plan enabled us to operate in a safe and uninterrupted manner where demand permitted. Working closely with our customers and suppliers we systematically increased activity and output in response to improved market demand and our support for local communities helped mitigate the impact of the pandemic and the ensuing socio-economic consequences on them.

"In response to the challenging market conditions we focused on the preservation of liquidity, lowering costs and re-prioritising various strategic actions. Commercial downtime of 1.1 million tons was taken across all segments as required, in order to match supply to demand and prevent the build-up of inventory. However, this had major repercussions for operating efficiency, fixed cost absorption and profitability. Additionally, non-critical capex projects were deferred, and some annual maintenance shuts were postponed for a short period. The project to expand the Saiccor mill capacity, which was put on hold through the initial months of the Covid-19 outbreak, is more than two-thirds complete and we expect commissioning in the third quarter of FY2021."

Turning to the financial results for the full year, Binnie said: "The positive highlight for the year was strong growth in sales and profitability for the packaging and specialities segment. This segment has proven to be resilient through the Covid-19 crisis and in difficult economic circumstances. Our strategy to diversify our product portfolio into higher margin and growing segments has been justified fully.

"Unfortunately, graphic paper usage across the globe declined significantly in line with the Covid-19 related slowdown in economic activity. We believe demand is unlikely to return to pre-Covid-19 levels and responded by reducing capacity at two mills. Lower DP volumes due to Covid-19 exacerbated an already tough operating environment for the segment, as historic low pricing levels persisted throughout the year. Fortunately demand and pricing began to recover in the fourth quarter."

Looking forward, Binnie stated: "While we are confident of a continued recovery through 2021, it is unclear what the potential negative impact will be of the current increase in Covid-19 infection rates and associated stricter lockdown regulations across Europe."

Summary for the Quarter and Full Year

For the quarter, packaging and specialities volumes and profitability increased compared to the prior year as the US business in particular experienced encouraging sales growth across all of the major product categories, offsetting a slightly weaker performance from the European business which was affected by the temporary shut of Alfeld PM3 following the fire at that machine in the previous quarter and softer demand for non-essential consumer products. The South African containerboard business also achieved a strong end to the year.

Industry demand for DP recovered faster than expected as global clothing retail sales rebounded and supply chain inventory levels, which had been allowed to run down, were refilled. In response to lower demand, we temporarily shut the calcium line at Saiccor and switched some capacity at Cloquet to paper pulp. As a consequence, DP volumes were 29% lower than the prior year.

Graphic paper demand in Europe and North America was most affected by Covid-19 over the May/June period. Since then we have experienced a slow recovery through to September with volumes 32% lower than last year. Downtime of 321,000 tons was taken in the fourth quarter, less than that required in the prior quarter, helping to improve profitability. Export markets, many of which were impacted later by Covid-19, were particularly weak. South African newsprint and uncoated woodfree demand continues to be impacted by the weaker domestic economy.

Earnings per share excluding special items for the quarter was a loss of 4 US cents. Special items for the quarter reflected an expense of $39 million. This related mainly to asset impairments due to weaker market conditions and restructuring provisions including the machine closures at Stockstadt and Westbrook.

Net cash generated for the quarter was US$88 million, compared to US$173 million in the equivalent quarter last year. The decrease was as a result of reduced profitability and restructuring costs, offset somewhat by lower capital expenditure. Capital expenditure of US$95 million related mainly to the expansion of DP capacity at Saiccor.


Underlying demand for most packaging and speciality products remains robust, driven by consumer preference and the shift from plastic to paper. First quarter sales volumes will be impacted in both Europe and South Africa by usual seasonal weakness and exacerbated by both the Ngodwana annual maintenance shut which was delayed from the third quarter of FY2020 and the scheduled Somerset annual maintenance shut. These shuts will have an estimated US$30 million impact on profitability, predominantly linked to the packaging segment. Some products remain affected by weaker economic activity in certain regions or end use markets impacted by Covid-19.

Market conditions for DP have improved and pricing has recovered during October. At the time of this report the Chinese market price has risen to US$680/ton, driven by an acceleration in DP demand, tighter market balance and higher viscose staple fibre prices. However, in the short term, the combination of the mill maintenance shut at Ngodwana, constrained production on the calcium line at Saiccor due to the closure of the Lignotech plant and DP pricing which still favours own consumption paper pulp production at Cloquet, will mean that DP sales volumes in the first quarter will be only marginally higher than in the preceding quarter. Port and rail challenges in South Africa may additionally impact sales volumes for the quarter. We are evaluating opportunities to recover some of the lost DP production prior to the completion of the Saiccor expansion project.

Graphic paper demand continues to improve, and a series of recently completed or imminent paper machine and mill closures or conversions in the industry should improve operating rates in the coming quarter and year. However, a second wave of Covid-19 infections in Europe is leading to stricter lockdown conditions and a slowing of the recovery in many countries. Pricing is expected to move in line with variable cost movements.

Current liquidity headroom in the group remains good, with cash deposits at the end of the quarter of US$279 million and committed revolving credit facilities of approximately US$582 million. We negotiated an extension of our credit facility covenant waiver suspension period until September 2021. The first measurement of these covenants will now take place at the end of December 2021.

Capital expenditure in FY2021 is estimated to be US$370 million and includes approximately US$100 million related to the decision to delay the Saiccor expansion project and the postponement of major shuts at Saiccor and Ngodwana which reduced capital expenditure in FY2020.

In the first quarter the underlying performance of the business will continue to improve, barring a widespread Covid-19 second wave, driven by the current recovery in DP and graphic paper markets. However, this will be offset by the impact on the packaging and speciality segment of the delayed shut at Ngodwana and the scheduled annual maintenance shut at Somerset. As a result, EBITDA in the first quarter of FY2021 is expected to be slightly below that of the fourth quarter of FY2020. We remain encouraged by the resilience of our business and the opportunities offered by our strategic focus on the transition of the business towards higher growth segments.

The full results announcement is available at

About Sappi Limited

Headquartered in Johannesburg, South Africa, Sappi is a global leader in paper, paper pulp and dissolving wood pulp solutions. The company has over 12,000 employees; manufacturing operations on three continents, in seven countries (nine mills in Europe, three mills in America and four mills in South Africa) and customers in over 150 countries worldwide. To learn more, visit:

SOURCE: Sappi Limited