Chemical cellulose expansions on track - Sappi Chief

09 Aug '12

6 min read

The southern African chemical cellulose business had an excellent production and sales quarter, with higher US Dollar pulp prices and a weaker Rand compared to the prior quarter, generating R480 million in EBITDA excluding special items and an EBITDA excluding special items margin of approximately 30%. The scheduled annual maintenance shut at Saiccor Mill was postponed until early in the fourth quarter to enable the business to benefit from robust demand, continued strong manufacturing performance and in light of the declining trend in pulp prices.

As regards the fine paper business, sales volumes for the quarter were 5% lower than in the previous quarter and the equivalent quarter in the prior year. The improvement in margins compared to the equivalent quarter in the prior year reflects the benefits of the various variable and fixed cost reductions that have been implemented in the past year across all regions. In Europe, volumes sold during the quarter were lower as a result of the seasonally slower demand and the planned maintenance shuts at our pulp mills. Nevertheless, demand was weaker than expected and 7% below that of the equivalent quarter last year. In North America, despite a weaker market environment, sales volumes were 2% higher than the equivalent quarter last year and 3% higher than the prior quarter, due to higher coated paper sales volumes more than offsetting lower pulp and speciality paper sales volumes.

The southern African paper business experienced a decline in sales volumes and prices compared to the prior quarter. In particular the containerboard and paper pulp sales were challenging for both volume and price, whilst the office paper and newsprint businesses were more robust.

Cash retained from operating activities was US$52 million for the quarter, an improvement from the same quarter last year. Net capital expenditure for the quarter was US$108 million, reflecting the increased capital expenditure attributable to the Ngodwana and Cloquet mills chemical cellulose conversions. Net debt increased during the quarter to US$2,213 million as a result of the net cash utilised and the once-off charges related to the early redemption of the 2014 bonds, partly offset by currency movements.”

Outlook
Market conditions are expected to remain generally tough, with greater uncertainty and lack of visibility. Trading conditions are expected to be weaker than a year ago, with lower volumes for most of our products and pricing, particularly for pulp, to remain under pressure. We believe input prices should remain generally flat and that fixed costs are well under control.

US Dollar exchange rate strength should be favourable for our European and South African businesses with increased margins on export sales in particular.

Saiccor Mill’s production remains sold out and both the Ngodwana and Cloquet conversion projects are progressing well and expected to begin operations in the third fiscal quarter of 2013. Good progress continues to be made with volume commitments for the additional chemical cellulose capacity.

Sappi