JOHANNESBURG (News release) -- Commenting on the group's results, Sappi Chief Executive Officer Steve Binnie said: "Following a strong last quarter, I am pleased we were able to exceed our expectations for the year with Adjusted EBITDA* of US$684 million for the year ended September 2024. Our strong performance occurred against the backdrop of the subdued macroeconomic environment, ongoing low consumer confidence, and persistent geopolitical uncertainty.
A key highlight was the pulp segment's strong performance, driving record profitability for the South African region. However, paper markets remained subdued, with the expected recovery in demand after the prolonged destocking phase of 2023 unfolding slower than anticipated. Significant fixed costs savings were achieved through our strategic rationalisation actions."
The principles of our Thrive strategy remain a focus on sustaining our financial health, enhancing trust and driving operational excellence. Growing the business in the packaging and speciality papers segment with the conversion and expansion of Somerset PM2 is a vital part of the plan which will offset the decline in the graphic papers markets. The project is on schedule, with commissioning set to begin early in the third quarter of FY2025.
Demand for dissolving pulp (DP) remained strong throughout the year, with selling prices rallying through the second half. Favourable market conditions were supported by a tight supply landscape and strong demand buoyed by high viscose staple fibre (VSF) operating rates and low inventory levels. Supply was tight following closures at competitors and little additional capacity added in the past two years.
Graphic papers sales volumes were up 2% from the previous year but the pace of recovery slowed as the year progressed, which suggests a likely permanent structural shift in demand. Lower selling prices were partially mitigated by variable cost savings. The closure of the Stockstadt and Lanaken Mills reduced the fixed cost base and enhanced European capacity utilisation, contributing to improved profitability of the segment compared to the prior year.
Demand for packaging and speciality papers products improved steadily through the year as the destocking cycle of 2023 reversed, leading to an overall 8% increase in sales volumes compared to the prior year. Market dynamics varied across the regions, with North America and South Africa experiencing stronger recoveries and returning to full operating rates compared Europe, where downstream demand remained suppressed due to lingering poor consumer sentiment. Although higher sales volumes and variable cost savings were achieved, these gains were offset by lower selling prices, leading to margin erosion for the segment.
Sustainability lies at the heart of our Thrive strategy as we aim to be a trusted, transparent, and innovative partner in advancing a biobased circular economy. We are proud of the progress made toward our Planet and People targets with steady year-on-year improvements. We remain committed to providing a safe and inclusive workplace and promoting sustainable practices to protect the environment.
Looking forward, Binnie stated: "Challenging global macroeconomic conditions and ongoing geopolitical tensions continue to cause disruptions in our markets. Additionally, supply chain instability and fluctuating input costs have 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.
Notwithstanding the ongoing global macroeconomic challenges, we anticipate that the Adjusted EBITDA for the first quarter of FY2025 will be significantly above that of the equivalent quarter of the prior year."
Financial summary for the quarter and full year
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Adjusted EBITDA*
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Profit for the period
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Adjusted EPS**
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Net debt US$1,422 million (FY23 US$1,085 million)
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Dividend 14 US cents per share (FY23 15 US cents per share)
Operating performance for the fourth quarter was substantially better than last year and the group achieved Adjusted EBITDA of US$226 million. A strong performance from the pulp segment and significantly lower wood costs in South Africa were the main drivers of the success. As a result of the lower wood prices, the group incurred a negative plantation fair value price adjustment of US$31 million.
The pulp segment benefited from strong demand, higher selling prices and lower variable costs, which boosted margins to a healthy 30%. The combination of high operating rates for VSF producers, low downstream VSF inventories and rallying textile fibre prices provided positive support for hardwood DP market prices which increased by a further US$18 per ton during the quarter.
Sales volumes for packaging and speciality papers were 16% above the prior year driven primarily by a recovery in North American paperboard volumes following the destocking cycle in 2023. European markets remained lacklustre with weak consumer sentiment continuing to weigh on demand in the region. The profitability of the segment improved year-on year as the higher sales volumes offset lower selling prices and higher raw material costs.
Underlying global demand for graphic papers remained suppressed but sales volumes for the fourth quarter benefited from a seasonal boost in North America. The higher sales volumes and substantial fixed cost savings from the European region offset lower selling prices, lifting profitability of the segment compared to the prior year.
The European region experienced a challenging quarter with weak economic conditions and overcapacity in graphic papers markets creating significant headwinds for the business. However, the closure of the Stockstadt and Lanaken Mills reduced fixed costs and enabled the region to record Adjusted EBITDA of €36 million, which was significantly better than the prior year. The recovery of paper markets was slow and although sales volumes were slightly higher than a year ago, selling prices were under pressure.
