Commenting on the results, Sappi Chief Executive Officer Steve Binnie said: “An initially strong start to the year was unfortunately offset by weak graphic paper markets and lower dissolving wood pulp (DWP) prices driven by the ongoing trade wars and slower economic growth in various geographies.
Our EBITDA declined by 10% year-on-year due to lower dissolving wood pulp prices and weak graphic paper demand. Our strategy to diversify our product portfolio into higher margin segments continues to deliver positive results.”
“The trend towards paper-based packaging in consumer segments continues, and we experienced stable demand for containerboard in the South African market. The recent projects to increase capacity at each of the DWP mills and convert capacity at Somerset and Maastricht Mills towards packaging boosted sales volumes in each of these segments during the year, and for the quarter delivered improved margins, thereby lessening the impact of weak graphic paper markets.”
Reflecting on the fourth quarter, Binnie indicated: “I am pleased that we were able to generate cash of US$173 million in the quarter thereby ending the year with net debt at US$1,501 million. This was done by tightly managing working capital and postponing discretionary capital expenditure.”
Looking forward, Binnie stated: “Due to the current very weak pricing in the DWP market and with paper markets yet to show signs of a sustained recovery in demand, we expect EBITDA in the first quarter of financial year 2020 to be below that of 2019. Management have taken a number of steps to mitigate the effect that the current uncertain market conditions and low DWP prices are having on the profitability and leverage of the group. These steps include tighter working capital management, the postponement and reduction in capital expenditure. The directors have furthermore concurred with management that it would be prudent to temporarily halt dividends until such time as market conditions improve.”