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Yahoo
11-05-2025
- Business
- Yahoo
Sappi Ltd (SPPJY) Q2 2025 Earnings Call Highlights: Navigating Market Challenges and Strategic ...
Impact of Somerset Project Shut: $20 million impact due to the shut. Additional Maintenance Impact: 13 million tonnes affected due to longer-than-anticipated maintenance shuts at Saiccor and Ngodwana mills. Net Debt to EBITDA: Increased to 2.4 due to higher CapEx. Refinancing: Completed refinancing of 2026 bonds with 2032 bonds. Free Cash Flow: Lower than prior year, linked to maintenance shuts. CapEx Projections: Increased to $550 million for the year due to Somerset project delays. Debt Reduction Target: Committed to reducing debt with a medium-term target of $1 billion. Dissolving Pulp (DP) Prices: Reduced from $970 to $900 during the quarter, further dropping to $830 post-quarter. Packaging Segment Growth: Positive growth in the US and South Africa, despite profitability impact from shuts. Graphics Segment: Stable volumes with market share gains in the US and Europe, but downward pressure on selling prices. Adjusted EBITDA Outlook: Estimated to be at a similar level to Q2 due to cautious outlook on DWP prices. Warning! GuruFocus has detected 4 Warning Sign with SPPJY. Release Date: May 08, 2025 For the complete transcript of the earnings call, please refer to the full earnings call transcript. Sappi Ltd (SPPJY) successfully completed the refinancing of its 2026 bonds, replacing them with 2032 bonds, indicating strong demand and favorable pricing. The company reported stable sales volumes, with the packaging segment showing higher volumes compared to previous periods. Despite challenging market conditions, Sappi Ltd (SPPJY) generated strong cash flow from operations. The Somerset project, which is now complete, is expected to double capacity and align with the company's strategy to reduce exposure to graphic paper and grow the packaging segment. Sappi Ltd (SPPJY) has a disciplined capital allocation strategy, prioritizing debt reduction and maintaining a strong balance sheet. Market conditions deteriorated across all segments, leading to pressure on selling prices and impacting earnings. The company faced significant impacts from maintenance shuts at its South African mills, leading to lower production and higher fixed cost absorption. There was a negative fair value adjustment on plantations in South Africa, affecting financial results. Energy costs increased in Europe and South Africa due to inefficiencies during maintenance shuts. The company is cautious about its outlook due to geopolitical trade tensions and the impact of tariffs, particularly affecting the dissolving pulp market. Q: What reaction have you seen from import competitors in the US market regarding pricing, and have you adjusted your prices for imports into the US? A: Stephen Binnie, CEO: We have seen various behaviors from different players due to the uncertainty, with some initially increasing prices and then reversing them. From our perspective, we have not increased our prices yet. Marco Eikelenboom, CEO of Sappi Europe, added that the uncertainty has led to a diverse approach, and they are waiting for negotiations between the EU and the US. Q: How exposed are Chinese viscose producers to the US market? A: Stephen Binnie, CEO: About 35% of clothing to the US comes from China, but the exact ratio for viscose producers is unclear as it often gets blended. Mohamed Mansoor, EVP of Sappi Pulp, noted that very little viscose staple fiber is exported to the US, but finished garments make up about 35% of US clothing imports. Q: Can you discuss the timing of the start-up of the new machine at Somerset and when it will be ramping up? A: Stephen Binnie, CEO: The initial ramp-up and teething issues are expected in Q3, with further improvement in Q4. Michael Haws, CEO of Sappi North America, added that the ramp-up is exponential in the early phase, and by the end of Q4, production levels should be back to pre-shutdown levels. Q: Could you talk about the calculus around swinging Cloquet from DWP back to paper pulp given the price falls? A: Stephen Binnie, CEO: The differential is about $250 a tonne, and with DWP prices at $830, the gap is closer. Hardwood pulp prices have also dropped, particularly in China. Michael Haws, CEO of Sappi North America, mentioned that they evaluate this on an ongoing basis to make the right business decision. Q: Can you update us on the timing delays of CCS prices and how they feed through into your top line? A: Stephen Binnie, CEO: Previously, 80% of our volume was on a quarterly lag, but now only about 15% is. The rest is either one month in arrears or on spot. This restructuring impacted Q2 and is why we are cautious about our Q3 outlook. Q: Are maintenance shuts in South Africa due to a shortage of skills? A: Stephen Binnie, CEO: It's not primarily a skills issue. Graeme Wild, CEO of Sappi Southern Africa, explained that the main concern was on the recovery boiler side, requiring expertise from equipment manufacturers. The delays were due to material weaknesses, not a shortage of skills. Q: How are you managing inventory levels in the dissolving pulp market amid tariff concerns? A: Stephen Binnie, CEO: A high proportion of our volumes is committed through contracts, so we don't anticipate significant volume risk. While there is a risk of inventory build-up, we expect a recovery similar to post-COVID once the tariff situation resolves. Q: Could you discuss potential structural actions for your European asset base given market challenges? A: Stephen Binnie, CEO: We don't anticipate needing to close any capacity at the moment, but we continue to evaluate the situation proactively. The current challenge is more about pricing risk rather than volume risk. For the complete transcript of the earnings call, please refer to the full earnings call transcript. This article first appeared on GuruFocus. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
News24
08-05-2025
- Business
- News24
Sappi slumps almost 15% as it takes hits from SA maintenance, trade war jitters
Shares of Sappi slumped on Thursday after it reported a second-quarter loss. Global uncertainty weighed, as did a sizeable fair-value loss, as well tougher-than-expected maintenance. But the group reported positives, including some market share gains, and it is optimistic about improving conditions. For more financial news, go to the News24 Business homepage. Shares of paper, pulp and packaging group Sappi slumped almost 15% on Thursday morning after it reported a disappointing second quarter amid depressed SA wood prices, as well as longer-than-expected local maintenance shuts. Sappi reported a loss of $20 million (R365 million) for its second quarter to end March from a profit of $29 million previously. Its adjusted earnings before interest, taxation, depreciation and amortisation fell 40.5% to $107 million. The group reported a financial hit of $13 million more than expected as a result of extended maintenance at its Saiccor and Ngodwana mills due to wear and tear on equipment being worse than expected, though these issues have now been resolved. It also saw a R307 million ($17 million) forestry fair value loss amid depressed SA wood prices. Valued at about R20 billion on the JSE before the fall on Thursday, Sappi's markets include SA, Europe, North America and Asia. Coated paper is its biggest product, accounting for 40% of sales, but the group also produces specialty paper for packaging, among other things, uncoated paper as well as containerboard. North America and Europe are its biggest markets, while SA only makes up 9% of sales by destination, but still represents 26% of its sales by source. Speaking during a media call CEO Steve Binnie said despite headwinds the group did see some more positive longer-term trends, and while the US tariff push had introduced a great deal of uncertainty, it may offer strategic benefits as well. The group said direct impact of the currently proposed US trade tariffs on its business to be relatively limited. At present, less than 7% of its sales volumes involve cross-border trade with the US limiting the direct revenue exposure to tariff-related risks. Given its US footprint, 'tariffs could present a strategic opportunity as downstream participants in the value chain may increasingly shift towards domestic supply,' said Binnie. More concerning was the inflationary impact of the tariffs as well as the potential effect on trade flows, he said. 'Everybody's adopting a kind of wait and see attitude and that's had an indirect impact on the pricing of our dissolving pulp. That is our most serious concern... hopefully, this can be resolved.' 'I do firmly believe that things have to normalise. The US needs clothing, and eventually the vessels will start flowing again once again and trade will start normalising and that will help pricing,' he added. In addition, softness in wood prices is also expected to be short-term, given the long-term drive to more renewable production, he said. The group also saw positives in the form of relatively good demand for packaging and speciality paper - used for example in ecommerce - which again gave it confidence about the long-term potential of this growing market. The group reported that demand for dissolving wood pulp (DWP) remained steady during the quarter, but the typical seasonal boost in demand post Chinese New Year was not observed as textile and apparel markets slowed on the back of increasing geopolitical trade tensions and macroeconomic uncertainties. Sales volumes in the packaging and speciality papers segment increased by 9% year-on-year, reflecting a normalisation of inventory levels and modest recovery in demand in North America and SA, though overall global demand remained subdued as a result of global uncertainty. While market conditions for graphic papers remained soft, targeted efforts to grow market share delivered positive year-on-year gains, the group said. Graphic paper is an industry in structural decline amid the rise of digital media and ecommerce. Binnie said this was all about customer relationships, with the group working with key customers to consolidate its footprint, with this at the expense of weaker players, being reflective of an industry where stronger players have an edge. Sappi's shares had slumped just under 15% in mid-morning trade on Thursday, trimming its market value to about R16.8 billion. The shares had now just under halved on a one-year basis.
