Shares in pulp and paper producer Sappi reported a strong final quarter, with the group expecting its 2025 financial year first-quarter performance to be even better.
The group’s share price rose 11% on Thursday, despite reporting sharply lower profit for the full year, amid a subdued macroeconomic environment and paper market.
However, the group reported a strong finish in the year ended September, with sales for the fourth quarter 6% higher at $1.46bn, while profit for the period rose to $79m after a loss of $40m for the corresponding period a year ago.
Sales for the year were down 6% at $5.46bn while profit declined 87% to $33m. Adjusted earnings before interest, tax, depreciation and amortisation (ebitda) were 6% lower at $684m.
Sappi declared a dividend of 14c from 15c a year ago.
The group said that against the backdrop of the subdued macroeconomic environment, low consumer confidence and persistent geopolitical uncertainty, the performance exceeded its expectations for the year.
A highlight was the pulp segment’s strong performance, driving record profitability for the SA region. However, paper markets remained subdued, with the expected recovery in demand after the prolonged destocking phase of 2023 unfolding more slowly than anticipated.
Sales volumes steadily improved in the second half of the year but remained 5% below the previous year.
Proactive management of capacity utilisation to align with demand, along with inventory optimisation to maintain working capital, positively affected earnings.
In addition, year-on-year fixed costs savings were achieved through the group’s strategic rationalisation actions.
Sappi said positive plantation fair value price gains in the first half of the year were offset by a reversal in the fourth quarter due to lower hardwood timber market prices in SA, which resulted in a net adjustment for the financial year of $1m.
Special items for the year reduced earnings by $225m, including $158m for the restructuring and closure of Sappi’s European assets. Net debt at financial year-end increased to $1.42bn from 2023’s $1.085bn, primarily due to the increased capital expenditure associated with the Somerset PM2 project and the closure of the two European paper mills.
The group said that challenging global macroeconomic conditions and geopolitical tensions continued to cause disruptions in its markets. In addition, supply chain instability and fluctuating input costs added pressure to both production and pricing strategies, making market dynamics unpredictable.
“In this environment, we are sharpening our focus on operational excellence by proactively managing capacity utilisation and vigorously pursuing cost saving opportunities.”
Capital expenditure for the 2025 financial year is estimated at about $500m and will include about $157m for the completion of the Somerset PM2 project. The project is expected to be completed by April.
The group completed the sale of the Sappi Lanaken Mill site and proceeds of $44m were received.
Sappi said it anticipated that adjusted ebitda for the first quarter of the year would be higher than that of the equivalent quarter of the previous year.
Update: November 7 2024
This story has been updated with new information.
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